Despite the fact that the U.S, Canada and Mexico are united under the North American Free Trade Agreement, the three countries are currently competing over gaining the largest share of the manufacturing sector. As such, investors and manufacturers throughout the region must consider the offshoring advantages and disadvantages of each location.
Canada struggling to keep ahead
Many investors offshore in Canada due to cultural similarities with the U.S., lower prices and a convenient time zone. Additionally, Canada's 43 free trade agreements make the country highly attractive to manufacturers looking to export goods at a lower cost. Low oil costs also impact Canada's manufacturing sector. CBCNews reported in January as oil prices continue to drop, investments are expected to increase, especially among more specialized manufacturers.
Canada has a major drawback, though. Manufacturing in Canada is costly, despite its weaker dollar, and labor costs higher than Mexico, the northern U.S. and the U.S South, The Seattle Times reported. As a result, Canada's manufacturing industry is dwindling, and by 2020, the nation is expected to produce only 9 percent of vehicles in North America.
U.S. losing its stronghold
One of the key benefits of manufacturing in the U.S. is that the country is one of the most open markets in the work. Further, Forbes reported a worker in the U.S. is associated with 10 to 12 times more output than an offshore worker, largely because of advancements in technology and automation in the country. Finally, the recent boom in U.S. crude oil and natural gas has added to the country's appeal to manufacturers.
Still, the U.S.'s stronghold over the manufacturing industry is steadily declining. According to The Seattle Times, Mexico has seen a 40 percent increase in auto jobs since 2008, while the U.S. only saw a 15 percent increase in the same time period. This decline is a consequence of the many drawbacks of manufacturing in the U.S., including high labor costs reaching $60 an hour, as well as barriers to exporting, as the country only has 20 free trade agreements.
Mexico on the rise
Mexico's manufacturing industry is expected to increase up to $60 billion annually by 2018; however, manufacturing in the country still has its drawbacks. Stephen Odell, head of global sales and marketing at Ford, believes that the cost of manufacturing in Mexico will eventually rise.
"Mexico has a lot of capacity going in. At some point, labor rates will go up as a result," Odell said to the Seattle Times.
"The average Mexican will work up to 450 hours more than an American every year."
Additionally, Mexico's political landscape, including corruption and violence stemming from the drug trade may be seen as a deterrent to some manufacturers; however, the Mexican government has taken strides to ensure work environments are safe for all businesses in the country.
Still, the benefits of manufacturing in Mexico greatly outweigh the disadvantages. Cultural similarities with the U.S., Canada and Latin America, efforts by the Mexican government to make manufacturing in the country more worthwhile, and liberalized trade are just a few among many benefits. Mexico has more free trade agreements than any country in the world, and labor is far more affordable. Additionally, as the Mexican government continues to focus on education, manufacturers will have greater access to both skilled and unskilled labor. Labor costs are by far the greatest advantage of manufacturing in Mexico. According to the Organization for Economic Co-Operation and Development - as cited by The Seattle Times - the average Mexican will work up to 450 hours more than an American every year, earning less than a fifth of the pay.