News, Insights and Best Practices for Manufacturing in Mexico

Mexico quickly overtaking China as a source for offshoring

25 Apr 2014

Category: Labor & Economics, Logistics Management, Manufacturing in Mexico, Electronics Manufacturing

Mexico is in a state of rapid industrial acceleration, according to Supply & Demand-Chain Executive (SDCE). The number of companies choosing to become a maquiladora in Mexico is beginning to overtake China and other parts of Asia due to the rising costs in those countries, as well as the price of shipping goods from Asia to the U.S. and other parts of the world. Many U.S. companies are moving out of China and into Mexico, often in cities near the border where it is easy to drive back and forth between Mexico and the U.S. in order to make sure the factory is running smoothly and facilitate the transport of goods from one country to another.

"We're seeing a steady 're-shoring' of industry investment from China to Mexico that's creating huge opportunities here for everything from manufacturing and transportation to warehousing services and technology-related enterprises," said New Mexico Economic Development Secretary Jon Barela. "We believe a wide array of businesses can flourish along the border as the maquila industry continues to grow."

Reasons China is becoming less popular
The advantages that Asia once had in the 1970s are gone, according to SDCE. China is becoming more integrated into global trade networks, and this is forcing the country to comply more with international labor standards, along with environmental and quality control standards. In the past, China cut corners on its production techniques, but it can't get away with this any longer, according to SDCE, because it has grown too large and the economy is shifting from manufacturing to consuming. For example, China's minimum wage increased by 20 percent in 2014. Other expenses have also increased, such as the price of energy and transportation expenses. Shipping is beginning to cost more, as well, according to Roberto Coronado, assistant vice president of the El Paso branch of the Federal Reserve Bank of Dallas.

Georgia is also forming trade ties with Mexico
Recently, according to the Brownsville Herald, U.S. Rep. Filemon Vela, D-Georgia, made a trip to Mexico in order to prove that although Georgia is not a border state with Mexico, the country can still be a crucial part of a U.S. state's economic policy. This is part of a larger campaign that the U.S. Department of Commerce has put together in order to foster further trade ties with Mexico.

The Herald reports that Mexico is the U.S.'s third-largest trading partner, and it makes a major impact on the economy even away from the border.

"(We) have decided to take a couple of messages to parts of the country that may not be too familiar with the significant trade relationship we have with Mexico," Vela said in a statement. "I continue to drive home that instead of spending money on border fences and Border Patrol agents that we should redirect that toward port of entry infrastructure."

A time for investment in Mexico
According to SDCE, foreign investment is "flooding" into Mexico's manufacturing industry as the tide shifts from China to Mexico as a source for inexpensive but efficient and skilled labor. The amount of money coming into Mexico from foreign investors totaled $13 billion last year. In 2012, the number was only $7 billion.

Manufacturing in Mexico has also become more sophisticated and diverse, according to the article. Companies are building auto parts, as well as flat-screen TVs and home appliances.

"Today, Mexico is the second-largest exporters of autos to the U.S.," Coronado said. "It displaced Japan two months ago, and it will soon displace Canada."

Those seeking to take advantage of Mexico as a source for labor may benefit from an offshore shelter company. Such a business would streamline the process and allow for a smarter transition into expanding into Mexican manufacturing.


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