There are distinct geographic, demographic and operational differences that exist between manufacturing on the U.S. - Mexico border and in the Mexican interior.
In terms of geography, the proximity of border manufacturing towns such as Tijuana, Mexicali, Nogales, Ciudad Juarez and others, companies with significant transportation demands often prefer to situate themselves in border locations in Mexico as opposed to venturing further into its interior.
A large number of truckloads going back and forth across the border, and further into Mexico’s heartland, translated into elevated transport costs that are borne by the manufacturer. Companies that ship large, bulky finished products from Mexico to the United States typically prefer to locate their operations’ proximity to the border.
From a demographic perspective, the workforce that is located on the border tends to be comprised of what might be described as a “floating” population. In practical terms, this means that a large portion of it is made up of individuals that come from cities and towns located further to the south where opportunities for employment may be scarce and difficult to encounter.
Below are some items to take into account when considering a border location as opposed to contemplate initiating a Mexican manufacturing facility in the country’s interior:
Mexican Manufacturing Labor Turnover:
In Mexican border towns the turnover historically runs from 4% to 15% per month. There are several factors to consider that contribute to the returns, however. Border cities typically produce higher rotation of personnel because many employees are from interior cities and will eventually return to their homes. Some workers may also cross the border to live in the United States. Border Maquiladoras often offer employees a bonus for returning to work after Christmas and the New Year, although it varies by city and company, this is still an added cost to be considered. One must also consider potential labor shortages in some border cities (depending on economic circumstances). Good economic conditions creates fierce competition for workers.
Interior Mexican towns typically produce a turnover in the neighborhood of 1.5% per month. Several factors contribute to these numbers. Typically interior companies do not pay a bonus for returning after Christmas or New Years like border companies do.
One must also consider absenteeism when considering turnover projections. Absenteeism runs from 2.8% to 12% in border towns and 1.9% in the interior.
Added Mexican Manufacturing Worker Benefits:
Added benefits are growing in border cities, which many offering lunch as a common benefit. These costs will only further increase in the future. Some companies go as far as providing two meals per day or even food stamps. These practices were started in an attempt to reduce absenteeism and turnover, giving the company providing these benefits a leg up on those that did not do so. It is important to note, however, that the leg up will not remain if all companies offer these added benefits.
Border companies have established trends such as giving a free breakfast and a free lunch; free prescription drugs; chiropractor services; and, free dental care. These added benefits are driven by the need to reduce turnover.
Interior locations typically do not offer free meals. Added benefits are also not as common in interior towns.
As stated earlier, many employees working at border companies are typically from the interior and eventually return home to their friend and families. As a result, living conditions in border areas do not contribute to health or permanence with the company. Interior locations such as Saltillo and Guaymas have been provided extensive housing for lower wage earners by the through government financed programs.
Crime and Social Issues in Mexico:
The floating population catalyzes crime and social issues in border cities. Factors related to drug trafficking, over-crowing, poor housing, and attempts by many to enter the USA contribute to these issues. These issues are frequent matters of discussion by the media on both sides of the border.
The quality of life is much higher in interior cities. Since it is natural instinct to search for a better life, this is a cause for many to return to interior cities. Worker employed in factories in cities in the interior typically are from those communities, and often have extended family living there. This makes the manufacturing workforce in Mexico’s interior a well-rooted one.
Education is highest within interior cities. Saltillo is considered to have the highest education level found in Mexico. Education and training is also available to industry in the Guaymas area. There are more engineers per capita in Saltillo than any other Mexican city. Saltillo is also rated number one for higher education opportunities among all Mexican cities. Since many interior cities have a long history of building educational institutions, this results with a better-trained work force with a higher skill level, translating to higher productivity and better maintenance practices.
In both border towns and interior locations, pay scales for operators typically run from $0.70/hour to $1.15/hour. If the average work year results in 2400 hours, this would equal about $1680 to $2760 per operator per year in addition to the cost of extra benefits.
There is additional freight transportation cost from the USA border cities to the interior of Mexico and return to the USA. It is expected that this cost per hour for freight will be much less than the savings one maintains in interior cities. None-the-less, freight does vary by volume and type of product so it is incumbent for each company to do their own research and analysis.