In the U.S. manufacturing sector, offshoring is not a new term. May companies established portions of their industrial operations in China long ago and then had goods shipped back into the country that were sold on the consumer market. This was done to establish positive relations with one of the largest economies in the world and also take advantage of lower labor costs which ultimately led to bigger profit margins.
However, over the last few years, the offshoring model has undergone a dramatic shift. Many manufacturers discovered that they could save even more money and generate greater bottom-line revenue by building factories and manufacturing products in Mexico. This is advantageous for a number of reasons.
The biggest is that the cost of labor in the country is far less than the U.S. or China. In addition, a company, particularly one based in North America, spends far less importing goods from Mexico as opposed to shipping these same items across the Pacific Ocean. However, there are a number of additional reasons why more companies are looking at Mexico as a potential location for offshoring.
For example, in the aerospace, electronics and medical device sectors, millions of products have been manufactured in Mexico and then exported across the border. The country also offers a higher level of productivity in relation to the actual cost of labor.
According to Business Insider, by next year, labor costs in Mexico will be 19 percent lower than that of China.
Manufacturing companies don't have to worry much about inflation because the country has been relatively stable in this area, as well.
Then, of course, there is the fact that Mexico has partnered with as many as 44 other countries in accordance the North American Free Trade Agreement. This means that companies with similar lines of manufacturing operations can tap into a workforce that is highly skilled and familiar with the production of similar items. This is one of the reasons automakers have made Mexico the primary base for their assembly line operations.
Other pros of manufacturing in Mexico
The Remote Staff Blog also highlighted a number of additional benefits gained by a company that decides to set up a manufacturing presence in Mexico. The biggest may be the fact that an organization can establish a presence in one of the world's fastest growing economies while taking advantage of the many incentives offered by the Mexican government for doing so, such as those related to taxes.
Additionally, energy costs are also significantly lower in Mexico. Running a factory requires both natural gas and electricity. With respect to the latter, the Comision Federal de Electricidad, which is the state-run electric utility company, plans to decrease costs by as much as 50 percent. This is certainly attractive to foreign companies, particularly those that have assembly line operations running on a 24-hour schedule.
There are many other benefits associated with offshoring in Mexico, but these are the ones that appear the most enticing for companies and why so many businesses are aggressively establishing a manufacturing presence in the country.