The COVID-19 pandemic has changed the perspectives of many US manufacturing companies regarding the location of their production facilities. Many of them depended on China, due to its cost advantages, nevertheless as the pandemic highly disrupted supply chains, logistics costs, among others, forcing companies to further broaden their horizons and think about other locations. Consequently, companies have considered moving manufacturing operations from China to Mexico.
In addition that labor costs in China have been rising steadily in recent yerd, which manufacturing labor cost per hour are currently approximate 35% higher than in Mexico, as according to the International Labor Organization, wages in China doubled from 2008 to 2019 and have continued to increase, the trade war between China and United States, which has complicated cooperation between the two countries, intellectual property problems, among others, which lead to companies adopt a reshoring strategy from China to other countries, including Mexico.
Why are companies considering moving operations from China to Mexico?
Mexico´s manufacturing industry has benefited and grown as a result of recent nearshoring initiatives. It has been considered an attractive destination when considering moving operations from China, due to the following advantages: the entry into force of the USMCA which provides greater stability to trade relations between Mexico and the United States, in addition to the 13 free trade agreement with 50 countries. Among other advantages detailed below which promote competitive manufacturing and stimulates job creation.
Advantages of Operating in Mexico
There are several advantages that have lead companies to move manufacturing operations from China to Mexico.
Cost and time savings
Mexico offer reduced logistics costs and time saving for delivering of raw materials or final produced, compared to increased logistics costs from China. In which due to Mexico’s geographic location it represents approximately 80% less in shipping times and costs, compared to China.
Workforce
Mexico offers highly trained workforce and competitive labor costs. Mexico has a large working-age population, giving the country excellent human capital advantages. Every year 120,000 engineering students graduate from Mexican universities and schools.
Location
Mexico is much closer to the U.S. and Canada than China. This easily allows for less potential problems in the supply chain, quicker shipping times and makes it easier and cheaper for U.S. and Canadian companies to send key personnel down to Mexico in case that requires a quick, in-person response.
Infrastructure
Mexico has a very good logistics network, with more than 117 seaports, 64 international airports and 27,000 km of railways. All these pros attract the attention not only of US companies, but also Asian companies that now want to be closer to the US market.
No restrictions on foreign ownership
Additionally, compared to other countries, Mexico does not have restrictions on foreign ownership in the manufacturing industries. Furthermore, the government promotes foreign investment by providing incentives to foreign companies such as de IMMEX Program, PROSEC, Rule 8th (Regla Octava) among others.
Are you looking to move manufacturing operations from China to Mexico ?
If you are looking to take advantage of the benefits Mexico offer for manufacturing companies, Mexcentrix can lead and support you in the complete process for establishing manufacturing operations in Mexico. Our shelter service offers full administrative and operational support including human resources, payroll, tax and accounting, foreign trade, customs, management IMMEX Program among others. Through our shelter program, our clients can focus on what they do best (production, quality, materials) and let us do what we do best.
Furthermore, if you would like to know how much it will cost you to operate in Mexico, contact us for a free cost model analysis.