28
Jan

The Advantages of Manufacturing in Mexico

The Advantages of Manufacturing in Mexico

Mexico has replaced China as American companies’ most favorite manufacturing base. It is favored due to various reasons, one of which is it helps to boost the American economy since most raw materials used in those maquiladoras are imported from the USA.

While the ultimate advantage of offshoring the manufacturing to Mexico is the reduced expenses and increased profits for US companies, there are at least ten other advantages.

First, Mexico has free-trade agreements with 44 countries. With the USA, the North American Free Trade Agreement (NAFTA) allows manufacturers in Mexico to access businesses in USA and Canada. This agreement is now being replaced by USMCA. Leaders agreed on a deal to pass a new trade agreement between the U.S., Mexico and Canada that will update NAFTA. The Mexico government provides an environment where foreign investments are encouraged.

Second, labor productivity is high and wages are relatively lower than China. Labor wages in Mexico is 30 percent lower than in China. Mexican laborers are also renowned for their strong skills in equipment parts and labor-incentive industries, which is a plus.

Third, low energy cost due to inexpensive gas. Electricity costs are relatively high, but Mexico’s gas price is renowned for being significantly lower than in USA and China. This fact would encourage US businesses to use gas, which is relatively cleaner for the environment.

Fourth, better control of intellectual property rights. With various bilateral agreements between USA and Mexico, American companies have better control of patents, copyrights, and trademarks.

Fifth, lower transportation and warehousing expenses. Cross-border land transportation and warehousing drive cost even lower. Thus, expenses saved can be used for other profit-centric activities.

Sixth, availability of highly skilled laborers in the manufacturing of certain industries. Mexican laborers are known for their strong skills in automaking and equipment industries, and other labor-intensive industries, such as clothing and textile industries.

Seventh, similar cultures, minimal language barrier, and closer time zones between USA and Mexico for more efficient management.   Many Mexicans have relatives residing in the USA and the cultural exchanges have occurred for centuries. Spanish is also a popular language in the USA, making communication barrier almost non-existent. Moreover, English-speaking middle management workforce are plenty.

Eighth, with increased standard of living, Mexico would make a great market for products manufactured there. With $10,000 annual GDP per capita, Mexicans have plenty of disposable income. More American products find their market in Mexico, and for products manufactured there, it translates to even lower distribution and warehousing costs.

Ninth, excellent access to highly-educated workforce, as Mexico City is the home of 38 colleges and universities and Tijuana home of 58. These higher education institutions produce thousands of skilled and educated young individuals, who are ready to be trained to perform as managers and liaisons.

Tenth, lower medical costs for laborers and educated workforce. The USA is notorious for its high medical costs. With lower medical costs in Mexico, American companies can afford to hire more employees.

In conclusion, manufacturing Mexico allows American companies to save costs and use a greater portion of their profits for research and product development. This, in return, would increase more production to be manufactured in Mexico. The maquiladora industry provides Mexico with good employment, economic stability, and foreign exchange. A win-win relationship, indeed.