With economic risks and complexities of globalization on the rise, US companies are increasingly manufacturing in Mexico vs. China. There are numerous factors driving this trend, but they all come down to this: a Mexico-based supply chain is simply more resilient and cost-effective.
In the 1990s, offshoring and globalization were in. US manufacturers found a virtually limitless labor supply for pennies on the dollar in Asian markets – particularly China. But this trend has been shifting over the past decade. And recent world events have only accelerated the exodus out of China, spotlighting the benefits of relocating operations to Mexico.
Major companies like Nike, GoPro, Panasonic, and Toyota – who for years leveraged Asia’s lower wages and deep labor pool – are now announcing relocation from China and Asian factories. Offshoring is now becoming nearshoring. As of 2020, Mexico is now competing closely with China for the position of top US trade partner.
US companies are now considering the rise of regionalism as a superior model to globalism. Rather than competing against each other, the US and Mexico have become powerful teams. As Mexico becomes increasingly modernized and business-oriented, their maquiladora manufacturing system offers US companies a robust tool for foreign manufacturing just over the US border.
The Benefits of Manufacturing in Mexico vs. China
Before the changes in the global economic order surrounding 2020, Mexico was already an attractive alternative to manufacturing in China. Indeed, the country has a rich manufacturing history spanning many decades. The reasons the Latin American country is such an attractive manufacturing location for US companies are numerous:
Low, Stable Wages While China’s labor costs have dramatically risen since the 1990s, Mexico’s remain stable and competitive. Currently, the average wage for a highly skilled machinist in Mexico is about $6/hour. Less skilled manufacturing labor costs around $2.5/hour.
Highly Skilled Workforce Mexico boasts an extremely trained and highly skilled labor force. The country boasts numerous academia-industry partnerships that churn out thousands of specialized engineers and skilled manufacturing experts each year.
Strong IP Protections China’s legal framework for protecting intellectual property and enforcing patent law is notoriously problematic and complicated. However, Mexico has taken a strong stand on protecting proprietary information and technologies. It is far less likely in Mexico for US products to be replicated. And legal recourse is much simpler should it occur.
Comparable Time Zones The convenience of managing operations in Mexico from the US is significant. Rather than dealing with time zones on the other side of the globe, US executives can typically work within usual business hours of their home time zone managing Mexican operations.
Free Trade Hub Manufacturing in Mexico allows US companies to not only take advantage of NAFTA/USMCA free-trade protections. They can also leverage Mexico as their passport to free trade with literally dozens of global markets. Mexico has signed more free-trade agreements than any country in the world, and currently has preferential access to around 50 countries.
Mexico’s Advantages Magnified
Recent events in the world have only magnified these and many other advantages of manufacturing in Mexico vs. China. These global changes brought new factors to the forefront that will both accelerate and cement Mexico’s strategic advantage for the long term. These factors include:
Risk As the United States entered a trade war with China a few years ago, tariffs became a serious concern. It became an obvious risk to depend on importing goods from China. Since then, US companies have looked for ways to diversify and mitigate risk. Mexico’s duty-free import status through NAFTA/USMCA makes it an attractive alternative. In the wake of rising tariffs on Chinese-made goods, border cities in Mexico like Tijuana are booming.
Resilience On top of the tariff problem with manufacturing in China, the world awoke in 2020 to COVID, a virus from China. Demand for medical and sanitation supplies changed and skyrocketed. The ability to adapt to global supply shocks and crises became front of mind for US manufacturers. Sourcing and manufacturing in Mexico vs. China dramatically shorten lead times, allowing US companies to respond to an ever-changing market more quickly and effectively.
These factors ensure that Mexico will continue to be the most cost-effective and strategic choice for US manufacturers for years to come. This is especially true when companies partner with a shelter provider to get up and running quickly without the hassle of regulatory compliance and import/export concerns. US companies are finding they can focus on quality and growth in Mexico while enjoying a stable, pro-manufacturing environment and cost savings. In a world full of increasing complexity, manufacturing in Mexico simply makes more sense.