News, Insights and Best Practices for Manufacturing in Mexico

Why Mexico is The Go-To Location for Offshore Manufacturing

22 Aug 2014

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

Mexico has become the premier place for companies to offshore their production, according to The Boston Consulting Group. The company believes that Mexico is now cheaper to manufacture in than China, according to a new report called "The Shifting Economics of Global Manufacturing: How Cost Competitiveness Is Changing Worldwide."

"Many companies are beginning to see the world in a new light," said Harold L. Sirkin, a senior partner at BCG and coauthor of the report. "They are finding that many old perceptions of low-cost and high-cost countries are out of date, and they are starting to realign their global sourcing and production networks accordingly."

An additional finding is that many countries like China and Brazil have total manufacturing costs that make production more expensive than in the U.S. Mexico, in contrast, is about 4 percent cheaper than China, according to BCG. The reason for this is that Chinese wages have increased dramatically in recent years. This inflation is causing businesses to sink more money into their facilities than they might otherwise spend if they built a factory in Mexico instead.

Companies are responding to this by moving their industries to Mexico. Electronics production has skyrocketed, rising to a $78 billion industry in 2013. Even Foxxconn has a factory in Chihuahua with 5,500 workers where it builds products, and the company plans to expand in Mexico as well, according to BCG.

Additional reasons for expanding to Mexico
Forbes has a list of reasons why expanding to Mexico is a great idea for companies. A maquiladora in Mexico, which is a type of factory with a special "maquila" designation has the benefits of tax incentives and help from the government, with the only requirement being that its products are exported. For companies that want to offshore, this is the perfect solution. The people who work in Mexico are strong and relatively young, according to Forbes, and they are often graduating from college looking for work in firms that will use their technical skills for jobs that previously hadn't existed in Mexico. Mexican labor is hardworking and efficient.

Additionally, Mexico has worked hard to make itself a country that companies would want to offshore their businesses to. To bring this about, Mexico has formed hundreds of ties with countries around the world in order to benefit trade. The most well-known is the North American Free Trade Agreement, which allows for tariff-free shipping on almost all goods back and forth between the U.S., Canada and Mexico.

One of the results of NAFTA is that border states like Texas see jobs growing in their region that are closely tied to Mexico. According to Houston Business Journal, this trend will only increase as Mexico expands its energy industry to include foreign investors. When companies offshore to Mexico, not only does Mexico benefit, but the U.S. also benefits from the back-and-forth between the two countries.

Houston in particular has a great deal of experience in the oil industry, and Mexico will look to places like that to find labor for building new fracking equipment.

"All of these things that are highly technical and need years of experience - that's where jobs for Houstonians comes," said Rich Russo, Korn Ferry global knowledge manager for the energy, chemicals and process manufacturing practices, according to the HBJ

This highlights the fact that Mexico is next door to the U.S. The back and forth between the two nations will benefit the economies of both - just as it has in the past. When the U.S. does well, then Mexico has a close ally it can export goods to, which means Mexico's economy grows as well.

Those seeking to expand to Mexico can contact a Mexico shelter company. They have to know-how to make this happen quickly and efficiently.


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