As a manufacturer, you periodically assess your needs and opportunities for outsourcing all or some of your manufacturing. In the last couple of decades, the choice for many U.S. manufacturers has been Asia, first China and now increasingly other countries in SE Asia, including Thailand, Vietnam and Malaysia. But let’s not overlook our neighbor to the south – Mexico offers many advantages to U.S. manufacturers, while reducing some of the disadvantages inherent in out-sourcing and off-shoring. Here are some reasons to consider Mexico instead of Asia:
1) Lower manufacturing wages: Labor costs are lower in Mexico than in China, when you adjust for the significantly higher productivity of Mexican workers. Even when looking elsewhere in SE Asia, while labor costs are lower there, so is productivity and quality.
2) Free Trade Agreements: Mexico has more Free Trade Agreements (FTAs) than any other country – 44 FTAs, including NAFTA with the U.S. These FTA’s open many more doors for trade, not only with Mexico but trading further on with Mexico’s many FTA partners, for sub-contracting and vendors. It is many respects a more hospitable FTA environment than most of Asia.
3) Energy: The costs of electric and natural gas energy are significantly lower in Mexico than in China and most of the rest of Asia. Mexico has huge reserves of both oil and gas, and is in the process of privatizing its energy industry. Energy-intensive manufacturing costs less in Mexico than in China (not even taking into account the energy costs of transportation).
4) Strong industrial clusters and expertise: Mexico has developed considerable expertise and experience in a number of industrial clusters, including automotive, machine building and medical devices, providing U.S. manufacturers with a rich network of skilled labor, training facilities, vendors and sub-contract manufacturers.
5) Supply chain: The supply chain and shipping distances between Mexico and the U.S. are much shorter, faster, less risky and less expensive. While the supply chain between SE Asia and the U.S. is measured in weeks, it is measured in only a few days between Mexico and the U.S. As transportation costs and risks continue to increase, that advantage will accrue more and more to Mexico.
6) Accessible: Most of Mexico is in the same time zone as Minnesota, compared to 12 hours difference to SE Asia, and therefore much easier to travel to. A trip to Mexico can be done in one-two days, while a trip to SE Asia requires several days, and entails jet lag. Phone conference calls are much easier to arrange, being on the same time zone, and the English language is prevalent throughout Mexico.
7) Quality control: The quality of Mexican labor and productivity is very high, offering fewer QC problems than in dealing with much of SE Asia. Adding that to the substantially shorter supply chain means that U.S. manufacturers will have far fewer quality problems in dealing with their Mexican subcontractors.
8) Politics: Mexico is a strong ally of the U.S., with few of the political tensions we have with China. Mexico sees itself as an important and valued partner with the U.S., unlike China, which at best views us in a more adversarial light. As we have seen in the last couple of years, the political climate between the U.S. and China has worsened, and there is little prospect of a near-term return to a more positive relationship.
9) Political stability: Mexico is a stable democracy; despite its reported problems with drug violence, there are fewer country risks with Mexico than with most of the countries in SE Asia. Consider that Thailand just experienced a military coup.
10) Intellectual property: There are far fewer problems with IP theft and hacking in Mexico than in SE Asia, especially in China. Your production methods, processes and materials are safer in Mexico.
No off-shoring opportunity is a panacea, and must be considered in the context of your overall corporate strategy, needs, market, supply chain and pricing. But many manufacturers have discovered considerable advantages in time, speed, quality and reliability when dealing with Mexican partners, as compared to Asian. It is worth exploring south of the border.