News, Insights and Best Practices for Manufacturing in Mexico

Why Mexico is beating China as an offshoring destination

05 Nov 2014

Category: Labor & Economics, Manufacturing in Mexico, Politics & Regulations, Taxes & Finance

Mexico has become a hotspot for offshoring activity. A number of companies are taking advantage of the Mexican government's open invitation to establish manufacturing operations in the country. Not only does this action benefit the organizations that move their industrial operations to the region, but it also provides a significant boost to the Mexican economy by providing jobs to those who are native to the country.

At one point in time, China was the target country for organizations looking to employ offshoring practices. That has since changed and now Mexico is reaping the benefits. But why is this?

The Boston Consulting Group offered several answers to this question. However, the most important may be due to the strong work ethic exhibited by citizens of Mexico.

BCG wrote that of all the member countries of the Organization for Economic Co-operation and Development, Mexican workers log more hours on an annual basis than any other nation. More importantly, there are relatively few disputes that take place with respect to labor. These are just two of the reasons the country has become an attractive option for companies looking to lower labor costs while still producing quality materials and seeing an increase in revenue generation in the process.

Additional reasons Mexico has become an offshoring destination for manufacturing companies
With respect to the cost of labor between China and Mexico, Bloomberg Businessweek conducted a wage comparison between Mexican and Chinese workers. The findings were staggering. According to the report, by 2015, workers in Mexico will command a salary that is approximately 30 percent lower than their Chinese counterparts.

It only makes sense for companies to give the country a hard look when it comes to manufacturing if quality products can still be produced at only a fraction of the cost. Another advantage that Mexico has over other countries that are seen as potential offshoring destinations is the fact that it has free-trade agreements with as many as 44 countries.

Comparatively speaking, China only has 18, while the U.S. is in partnership with 20 countries. The North American Free Trade Agreement has benefited Mexico more than any other country. The Mexican government has done an exceptional job of leveraging these partnerships to provide a financial boon to its economy.

Another positive highlighted by Bloomberg is the relatively low energy costs when compared to China. The country's surplus of natural gas makes operating a manufacturing facility far less expensive. Industrial organizations in China pay as much 170 percent more for natural gas, and these costs are typically passed along to the consumers. In addition, electricity costs are also significantly lower in Mexico, as well.

These are just a small fraction of the reasons why companies are increasingly relocating their manufacturing operations to Mexico. With China essentially having a stranglehold on offshoring activity for years, things are slowly beginning to shift as companies realize the benefits of doing business in the country.

 

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