A General Cost Overview to Manufacturing in Mexico
06.28.23Manufacturing in Mexico continues to be a reliable strategy for U.S. and other foreign manufacturers, largely due to the cost savings compared to manufacturing in the U.S. or China. Though each company has its own specific expenses to consider, there are several, general categories of costs to consider when creating an operating budget. Here are expenses to evaluate when determining if Mexico manufacturing is the best strategy for you.
Average Labor Rates in Mexico
The cost-effective labor rates in Mexico continue to be one of the most competitive factors motivating manufacturers to expand and/or move their operations. This is an area where companies can save most and still have access to a wide pool of qualified industrial talent.
Though rates will vary by region and job type, the average wage for a fully burdened, semi-skilled worker is $5.30/hour USD compared to $23/ hour USD in the U.S. A fully burdened salary also includes company benefits and covers a 48-hour work week, which allows operators to make more accurate calculations when creating an annual budget.
Regulatory Expenses When Manufacturing in Mexico
When setting up operations in Mexico, foreign manufacturers must be approved for operating permits, including registration in the IMMEX program. IMMEX certification is required before production can begin, and the approval process can be lengthy. Additionally, the smallest application mistake or oversight can cause the process to start over.
Fortunately, those working under a shelter can work with the permits and certifications already in place. This includes IMMEX certification, which automatically exempts U.S. and other foreign operators from the 16% VAT applied to all temporarily imported goods, materials, and machinery.
Industrial Real Estate & Utility Costs
The increased demand for industrial space has made site selection in Mexico as competitive as hiring labor. A typical class A building ranges in price between $.52 USD and $.70 USD per square foot per month in many industrial parks. And, in addition to the base real estate price, operators will also need to budget for:
- Taxes
- Insurance
- Maintenance
- Security
- Building upgrades
- Utilities
Depending on a company’s unique manufacturing needs, upgrades like ventilation, lighting, security, and additional power may be required. Also, building out break rooms and office spaces are usually part of the complete real estate cost as well. Meanwhile, utilities vary depending on the region and availability. These services and average costs in Mexico include:
- Electricity – $0.117 USD per kWh
- Natural gas – $0.034 per kWh USD
- Water and sewer – $0.007 USD per gallon
- Internet – $20 USD per 8 Mbps monthly line
- Phone – $20 per month for a primary line
Transportation and Logistics Costs
Manufacturing in Mexico is made easier and more cost-effective due to its geographical location, established infrastructure, and transportation options. Due to the close proximity to the U.S. market, there’s a built-in cost and time reduction to ship goods from Mexico. A 40-foot shipping container arriving from China to the U.S. can equal upwards of $8,000 and take several weeks to arrive. Whereas, goods produced near the border in Mexico can often be delivered to the U.S. within the same day.
Analyzing All Operating Expenses
Labor rates in Mexico, regulatory expenses, industrial real estate rates, and transportation costs are main categories to consider when analyzing an operational budget. However, there are administrative expenses to consider as well, including recruiting and hiring workers, acquiring permits and certifications, and maintaining legal, tax, and trade compliance.
IVEMSA helps companies save and can provide a cost analysis through its shelter service model. The shelter handles all administrative tasks necessary to launch a new setup in as little as three to four months. By doing so, operators can focus solely on manufacturing and get their products to market faster.