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Many U.S. companies that are exploring manufacturing or assembly offshore consider both Mexico and Asian options, such as China.

Mexico vs. China Hourly Manufacturing Wages

Figure 1 below illustrates a converging trend in manufacturing wage over time between China and Mexico in relation to the United States Dollar. As a result of steady annual increases in Chinese wages and low concentration of skilled workers in Mainland China’s coastal region, Manufacturing in Mexico is increasingly being seen as an alternative to China. Mexico’s predictable, steady wages offer certainty to companies looking to forecast manufacturing costs. Mexico has closed the competitive gap that, until recent years, made China a more attractive locale for some types of manufacturing industry. Mexico is main manufacturing hubs for the industries in recent years.

 Direct Labor Average Starting Hourly Wage

Mexico vs. China Foreign Exchange Rates

When establishing manufacturing operations or assembly operations, companies must pay close attention to foreign exchange currency rate trends and forecasts. Slight changes in an exchange rates can expose companies to currency exchange risk. Figure 2 below contains five years of foreign exchange data between the United States Dollar, the Mexican Peso, and the Chinese Yuan. The data shows over the last five years that the ChineseYuan has been held relatively flat in relation to the U.S. Dollar while the Mexican Peso has become 45% cheaper in relation to the U.S. Dollar. This Peso depreciation generally keeps hourly wages in USD relatively level in Mexico. Manufacturing labor costs in mexico is cheaper than china. Labor costs is essentail in manufacturing facilities. labor force in mexico is more than china.

 foreign exchange rate


U.S. Trade Deficit Mexico vs China

Figure 3 below illustrates the imbalanced trade relationship between the U.S. and China in contrast to Mexico. The current trade imbalance with China is attributed to China’s monetary policy, prohibiting the Yuan to appreciate in trade agreements. Currency manipulation makes the Yuan susceptible to spikes and uncertainty in wage growth as China’s Central Bank relaxes its monetary policy. The sheer size of China’s deficit with the US has caused increasing political pressure to bring it into parity. The trade war relationship between the U.S. and Mexico has been significantly strengthened through the North American Free Trade Agreement (NAFTA), signed in 1994. Figure 3 below shows the trade deficit as of 2018 between the U.S. and Mexico. Unlike China, Mexico allows its currency to “float” or appreciate in world currency markets. This allows wages in Mexico to remain relatively stable and certain.

Mexico Vs. China - Trade Deficit with US

Baja California is the closest Mexican state to Asia with a modern seaport to receive cargo.

Comparative Analysis of Mexican vs. Chinese Manufacturing

Ability to manage
  • At most, a few hour flight away
  • At most several hour time difference
  • Language and numbers use same characters
  • Worker Productivity is great
  • Half way around world
  • Time zones differences of many hours
  • Language and numbers use completely different characters.
  • Worker Productivity is not good
Shipping transit time to U.S.
  • Less than one day
  • Only Small quantities can be shipped by air in two days at a high cost per pound.
Quality Issues
  • When quality issues occur it is practical to send product back for reprocessing given distances and costs
  • When quality issues occur, which seem to be frequent in start up given distance and communication barriers it is very difficult logistically to deal with rework or returns.
  • Economy is closely linked to the U.S with long term trend of Mexican peso slightly deflationary to the dollar terms
  • Currency is artificially pegged to the dollar, but inflation is significant, putting pressure on China’s historically low labor cost advantage.
Protection of Intellectual Property
  • Intellectual property is protected and Mexican courts typically respect and enforce companies’ all rights reserved to intellectual property. lease rates are better in mexico
  • Counterfeits are common in Asia and courts have been slow to enforce or recognize intellectual property rights.
Social Responsibility
  • Relatively strict environmental laws
  • 48 hour work week and a low, but livable wage in Mexico.
  • Tight family circles with employees going home daily
  • Less strict environmental laws
  • 6 day week 12 hour days are not uncommon.
  • Workers live in factory dormitories and go home for Chinese New Year.
Availability of qualified workers
  • Generally plentiful, with seasonal tight periods. labor laws said High birth rate bodes well for a long term supply of labor.
  • Generally plentiful, with some higher concentration of engineering talent. Low birth rate is a long term significant labor problem due to this labor rates high.

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