Mexico vs China Manufacturing
Mexico is the United States’ second-largest supplier of imported goods. In 2018, Mexico imported $371.9 billion worth of goods into the U.S. Manufacturing imports included vehicle components; agricultural products; medical instruments; and much more.
In 2019, the North American Free Trade Agreement (NAFTA or AKA American Free Trade Agreement) ended. The transition to the United States-Mexico-Canada Agreement (USMCA) presented manufacturers with new opportunities. The new trade agreement also raises many questions.
Should manufacturers still pursue manufacturing partnerships in Mexico? Is an overseas partner like China a better fit? In the decision between Mexico versus China, who can provide the best value and support?
BF&S Manufacturing understands these concerns. Our team knows that the decision to move your operations to a new country is not an easy one. We want to take the anxiety and guesswork out of the decision-making process. Our goal is to help you see the advantage in choosing to manufacture products in Mexico.
The best way to do this is to debunk seven common misconceptions about moving your company to Mexico.
Manufacturing in Mexico Is More Expensive than in China – True or False?
FALSE. For decades, China represented the most cost-effective way to manufacture goods. The low labor costs meant that companies could reap a 30-80% cost reduction in operating costs. Over the last decade, China’s wages and overseas shipping costs have increased. There is now only an estimated 4% difference between labor costs in the United States and China.
In 2018, the United States took steps to place 25% tariffs on $50 billion worth of Chinese imports. These heavy tariffs signaled the start of a “trade war” between China and the United States. Companies on both sides of the divide continue to struggle under the expense. The manufacturing labor costs are very favorable to Mexico than China.
The answer is clear. It is now less extensive to manufacture goods in Mexico. There are several components that contribute to this shift.
First, labor costs in Mexico are 40-50% lower than in the U.S. On average, Production Operators make $3.50 (USD) per hour. Even skilled laborers earn less in Mexico because the cost of living is so much lower than in America. As wages in Mexico grows, evidence shows that productivity also increases. This means companies can continue to keep labor expenses low while building revenue.
Another benefit to manufacturing in Mexico is the proximity between the two countries. Lower shipping costs mean companies do not have to pass the expense onto their customers. Also, the reduction in delivery times means companies can turn items faster. Both advantages keep the cost of doing business reasonable for all involved. The logistics of transporting items through the Mexican ports are less complicated than in China.
Finally, Mexico offers better exchange rates than China. Mexico’s facilities try to use natural gas instead of electricity. Both measures reduce operational costs. This is another area where China is unable to compete.
Mexico vs China Manufacturing: China Is Safer than Mexico – True or False?
FALSE. The World Economic Forum recently released its annual crime report. The forum “measures the extent to which a country exposes tourists and businesses to security risks mainly related to serious harm to people (violence and terrorism).” According to this report, Mexico (53.31) is currently ranked near the U.S (47.7).
Headlines about border violence are unsettling, but these reports are incomplete. The violence that dominates the headlines revolves around a few large cities. Gang violence is a problem in many parts of the world. Legitimate businesses have never been targets of this violence.
Manufacturing in Mexico, like other places, depends on creating a security-conscious environment. The safety measures we take in Mexico are not different from other countries. Those tools include surveillance cameras, gated entry points, and security personnel. We take the safety of our employees and your business seriously. Here in Agua Prieta, BF&S Manufacturing has not experienced any of the violence of other border towns. Our population of 100,000 prides itself on being a quiet, family-oriented community. We want to keep it that way.
The Production Quality in Mexico is Poorer than in China – True or False?
FALSE. For years, Mexico’s reputation for quality manufacturing has made it an industry leader. Mexico is a hub for aerospace, automotive, and medical device manufacturing. Mexico is now the leading producer of electronics due in part to its access to skilled labor. The electronics manufacturing industry requires quality controls. These positions are often difficult to fill in the United States.
BF&S Manufacturing is AS-9001 certified. This means that the quality of our work certifies us to work on Aerospace projects. AS-9001 certification requires us to maintain high standards. We meet these standards in both the materials we use and the finished product. Our success depends on your success. We demand excellence of ourselves. In turn, we can provide excellence to our foreign partners.
By comparison, China often experiences quality issues with its products. These quality issues usually result in write-offs. The logistics associated with returning an item are often prohibitive. These costs may vary depending on the product or the manufactures involved. These issues usually include shipping costs, distance, time involved, and language barriers.
Moving Operations to Mexico Is More Complicated than Moving to China – True or False?
FALSE. Foreign companies rely on manufacturing shelter companies to guide them through the transition. A shelter company focuses on the administrative and legal logistics of a business. While the foreign company focuses on its core goal: manufacturing. The production value of the product remains high while decreasing the operating costs.
For over 50 years, Mexico’s shelter services have provided their global partners with protection from liability. This means that foreign companies are not vulnerable to Mexico’s legal system. Shelter companies simplify the process of moving operations to Mexico. Providing a turnkey, start-up approach to manufacturing is only one of the benefits. Under a shelter company, you maintain all intellectual property rights.
By comparison, outsourcing manufacturing to China is a daunting task with few protections. The complexities can be cumbersome and expensive. Manufactures are vulnerable to Chinese laws and taxation practices. Without a shelter company, manufactures have few allies in China if something happens.
The Facilities and Working Conditions Are Worse in Mexico – True or False?
FALSE. Conditions in Mexico manufacturing have improved over the years. Foreign manufacturing companies in Mexico know they must meet global standards. They provide benefits for their employees including medical, family leave, paid sick time. Labor unions advocate for safe working conditions and fair wages.
China is one of the top 10 worst countries for workers’ rights. News reports out of China continue to decry China’s slave-labor mentality. Even if their employees receive a 40-hour work-week, conditions can be brutal. Reports of abuse and sub-par benefits are not uncommon.
In the end, manufacturers need to examine the risk to their reputation in the global community. Labor conditions are often at the top of watchdog organizations’ hit list. Sacrificing human rights for labor costs could be detrimental in the long run.
Mexico vs China Manufacturing: Outsourcing Is Stealing American Jobs – True or False?
FALSE. Recent headlines have capitalized on the fear that moving operations out of the U.S. is costing U.S jobs. It is true that millions of U.S manufacturing jobs move to Mexico and China each year, but that isn’t the whole story.
United States manufacturers often choose to outsource lower-level work to Mexico or China. The cost-savings this represents makes the manufacture more competitive. The reduction in costs means that there is more room in their budgets for skilled U.S-based workers. In some cases, lower-level jobs can also be difficult to fill in the U.S because of the high cost of living in that country. In that event, manufactures find it necessary to outsource parts of their business.
This doesn’t mean that only low-level jobs are moving to Mexico. Mexico’s access to a skilled workforce makes them a coveted destination for manufacturing.
Solving Manufacturing Problems in Mexico is More Difficult than in China – True or False?
FALSE. Mexico’s proximity to the U.S means traveling back-and-forth is cheaper and faster. You will reduce the cost of lengthy international travel. Your executives will be able to spend more time in their offices. When you can’t be on-site, a knowledgeable workforce will provide clear information.
By comparison, China’s distance can make it difficult to resolve issues. The time and expense involved can cut into the cost-savings you were hoping to achieve. Steep differences between time zones and languages can produce added expensive manufacturing delays.
Mexico vs China Manufacturing: Who Will You Choose?
Manufacturing in Mexico doesn’t have to be a last resort. BF&S Manufacturing would like to help you learn more about why choosing Mexico is the superior choice compared to China’s options.
Our company has over 40 years of manufacturing excellence. Our ongoing dedication to high-quality, low-cost manufacturing makes us a great shelter company. We understand the pressures facing the global manufacturing industry. We understand that you want to see the advantages of lower labor costs while taking advantage of increased production. We’re prepared to help you achieve these goals, and much more. Contact us for your FREE initial consultation today!
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