Many times, after deciding to establish a manufacturing site in a competitive cost country, the next choice to make is “Mexico or China?” China has been an attractive option for many companies, but more and more are choosing to manufacture in Mexico instead. Here’s why.
Especially for U.S. companies, Mexico’s location offers huge advantages. It’s easy for managers at U.S. companies to visit facilities in Mexico on a regular basis—you could even get there and back in a day, unlike spending at least half a day just to get to China. Travel to Mexico doesn’t require as much advance planning.
Your Mexican facility will likely be in your time zone, or no more than three hours ahead or behind, so communication will be simpler as well.
Shipping from China takes longer and is more expensive. According to Investing Daily, it would cost about $7,000 to ship a 40-foot container from China, but just $2,800 from Mexico. During the last few years, sea container transportation from China has gone up to $12,000 to $15,000 USD, while a full container shipped from a facility near the Mexico border to the US distribution center costs around $250 USD. This cross-border movement from Mexico to the US is normally done on the same day. If your facilities are in one of the border cities, it can take just 24-48 hours to get your finished goods from the plant to their destination in the U.S. Those same goods could take up to three weeks to arrive from China.
Mexico is now known for having a diverse, highly-skilled workforce—many of whom are at least partly bilingual. Mexico’s labor force is also relatively young, while China’s is aging and declining due to its family planning policies.
When quality issues occur, it’s relatively easy to address them when production is in Mexico. Products can be returned to be repaired or replaced, and managers can visit the plant to fix the problem. Quality issues in China— which may occur more often due to the distance and communication barriers—are more challenging to fix.
For years, wages in China were much lower than Mexico’s. Now, Mexico’s manufacturing labor costs are 20% lower than in China. When adjusted for worker productivity, the gap is even wider. Mexico also offers steadier wages, so companies can more easily predict labor costs. Exchange rates between the dollar and the yuan and peso also contribute to this change.
Mexico has 12 multilateral trade agreements that provide preferential trade access to 44 countries, making it one of the most open countries in the world for international trade. USMCA in particular has helped transform Mexico’s economy into one driven by manufacturing and exporting.
While Mexico has a strong trade relationship with the U.S., as evidenced by the USMCA, The China-U.S. relationship suffers from battles over import duties and tariffs. Additionally, there is an ongoing geopolitical struggle between the U.S. and China that often impacts businesses operating in both countries.
Overhead and transportation costs are much lower in Mexico than they are in China. When you manufacture in Mexico instead of China, you can expect to save approximately:
Mexico has a strong reputation for protecting intellectual property rights. By contrast, China frequently has problems with counterfeits, and courts are slow to enforce or recognize intellectual property rights.
The shelter program in Mexico is designed to reduce risk and liability for foreign companies. Instead of setting up your own legal entity in Mexico, you can run your manufacturing under one owned by IVEMSA. We’ll handle all the permits and licenses, lease your facility, and take care of administrative responsibilities like HR and accounting. You get to focus solely on manufacturing and will maintain complete control over your processes and production.
Learn what to expect when looking for industrial real estate in Mexicali, Baja California’s second most populous city and home to many multinational company operations. Find out what you need to know about site selection for your manufacturing operations, along with important information about timelines, utilities, and tenant improvements.
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