Chicago's manufacturing sector has experienced a steady decline over the past decade. Just recently, Morton Salt announced it will close its longtime salt production facility. Even more shocking to the city was an announcement by Mondelez International, the food manufacturer that produces Oreo cookies, that it would be moving some of its Oreo and other cookie production to an industrial community in Mexico.
"Manufacturing in Mexico will provide tremendous cost savings to Mondelez International."
Once the new production is added next year, the facility will cost roughly $500 million to employ 600 people in the area, a Mondelez International spokeswoman told The Chicago Tribune. While this may seem like a steep number, the offshoring advantages of manufacturing in Mexico will provide tremendous cost savings to the business; a reality that companies across all sectors, including medical device, electronics and automotive manufacturing are beginning to realize. There are three key reasons why Oreo is moving its Chicago production to Mexico, which affect manufacturers across all industries:
Oreo's Chicago production is moving to the Interpuerto Monterrey industrial park. One one of the main qualities the area has to offer is its infrastructure, especially in the form of railroads. More specifically, The Chicago Tribune noted the Mexican government has welcomed private investment in the area to foster the development of roads, highways and utilities. Additionally, Interpuerto Monterrey has access to two of Mexico's most important railways, Ferromex and Kansas City Southern de Mexico.
The infrastructural advantages of manufacturing in Interpuerto Monterrey are not necessarily unique, though. As Mexico's manufacturing sector continues to thrive, the government has taken great strides to improve infrastructure to create a more compatible business climate. The Mexican government goes above and beyond to enhance its industrial parks and on a larger scale, is working to improve infrastructure throughout the country. In fact, last year, the Mexican government published its "National Infrastructure Program", which outlined a $600 billion plan to improve transportation, communications and energy. Additionally, Business News Americas reported the Mexican government plans to invest $1.7 billion to expand rail infrastructure within its borders.
2. The North American Free Trade Agreement
Mexico's participation in NAFTA means Mondelez can now export its products cheaply. With access to over 44 free trade agreements, companies like Mondelez have greater assurances their business endeavors will be lucrative. From shipping Oreo cookies to purchasing operational machinery from counties outside the U.S. or Mexico, lower tariffs equate to tremendous cost savings. And Mondelez is not the only company leveraging the near-shore advantages of Mexico and its NAFTA participation. Auto manufacturing companies like Nissan and Ford, as well as companies within the aerospace and furniture manufacturing sectors are able to create faster, more efficient supply chains through Mexico's proximity to high-demand markets as well as its extremely liberal trade policies.
Finally, the cost of labor in Mexico is a major offshoring advantage of moving to Mexico. Today, manufacturing labor costs can reach $60 per hour in the U.S. In fact, The Bakery, Confectionery, Tobacco Workers and Grain Millers International Union stated in a press release that Mondelez International would save $46 million annually by relocating to Mexico, where the company will be able to pay workers a much lower wage. Further, as Mexico's workforce becomes more highly-skilled and educated, Mondelez will not lose quality with the cost savings.
Mondelez International is just one example of a company realizing the of benefits manufacturing in Mexico, and these advantages span all industries.