It's no secret that China is loosing its grip as an offshore manufacturing powerhouse. China's single greatest benefit - lower wages - is undergoing drastic changes, with wages doubling in parts of the country. Longer, less flexible supply chains, high logistical costs and increased time to market are just some of China's disadvantages as a manufacturing destination for North American manufacturers. According to CNBC, Mexico is the next up-and-comer in competitive manufacturing, with some of North America's largest and most influential automakers choosing not to expand to China, but to invest in Mexico. The list of Canadian and U.S. manufacturers with maquiladoras in Mexico is only expanding, and CNBC suggests it's Mexico that will be the next manufacturing superpower.
Beating out China
CNBC reported foreign direct investment - and not just from North American companies, but European ones as well - is driving Mexico into becoming a manufacturing power to be reckoned with. Most North American businesses nearshore to Mexico for lower shipping costs, so it may seem odd that companies like Swedish appliance maker Electrolux are moving to Mexico as well. Even though Mexico isn't necessarily near to Europe, it's closer to the European market than China. Transporting goods over Asia is just as difficult - and long - as shipping, making Mexico a stronger choice for North American and European manufacturers.
Supply Chain Digest reported the gap between Mexican and Chinese wages have narrowed, and with Mexican wages traditionally fluctuating less than Chinese pay, which has a long history of skyrocketing, it is a better financial bet for manufacturers to choose Mexico over the Asian country. According to CNBC, the differences between Chinese and Mexican wages are now merely pennies per dollar.
"Until very recently, China had been cheaper, more flexible and more accommodating to industry, but wages in China are rising at a remarkable clip, putting cost pressure on manufacturers," Gordon Hanson, economics professor at the University of California, San Diego, and director of the Center on Emerging and Pacific Economies, told CNBC.
Shorter supply chains and competitive wages might be the key advantages Mexico has over China when it comes to offshore manufacturing. These aren't the only factors that are contributing to Mexico's success. CNBC reported compatible business culture and low inflation are adding to growth in sectors like aerospace and appliances.
"You have all these factors suggesting that Mexico can become a very important manufacturing hub," said Gabriel Lozano, an economist at J.P.Morgan.