More manufacturers are choosing Mexico as their offshore destination over China. With Mexico's lower labor costs, seamless supply chain and workforce industry expertise, the county has many advantages over China. However, what are the real costs associated with both offshoring locations? Manufacturing in Mexico is cheaper and produces a better product than China, but knowing why this is the case and the hard numbers associated with it can help manufacturers understand why so many of their competitors are expanding to Mexico rather than China - and why they need to do too.
Being a neighbor of the U.S. gives Mexico a significant edge on China in transportation costs. According to Braumiller Schulz, an international law firm, shipping products from China to the U.S. costs, on average, $5,000 per container. In contrast, transporting the same goods from Mexico to the U.S. costs approximately $3,000. This is because manufacturers who offshore to Mexico are able to utilize cheaper transportation, such as trucks and railways, while those in China must use boats or, for lighter goods, airplanes, both of which require more fuel and thus more expense.
In addition, the time to market is shorter from Mexico to the U.S. compared to China. According to McClatchyDC, it takes some manufacturers 90 days to get goods across the Pacific Ocean. For certain industries, consumer needs can change during that timeframe and the products may no longer sell as much as expected. In fact, manufacturers have found transporting goods from Mexico to the U.S. is just as good as shipping products from state to state across the U.S.
"[Mexico's] long-haul trucks are as good as anything I've seen in the U.S.," Frank Lange, the vice president of global development at Menlo Worldwide Logistics, told McClatchyDC. "It's a misperception that Mexican trucks have bumpers that are about to fall off."
It also takes longer for executives to get to China in case issues arise.
"You've got to get a visa to China, and that takes time," Rob Moser, the president of Casabella Holdings, told the newspaper. "It's a 16-hour flight, hours to the factory. It's days at the very least to tackle some of these [production] issues. You literally can be in a facility in Mexico the same day and be fixing things. That is a huge benefit."
Perhaps the other biggest cost benefit is Mexico's competitive wages. McClatchyDC reported a recent study by business strategy consulting firm the Boston Consulting Group found the average wage for manufacturing workers in China is now at $4.50 an hour. This includes benefits and other costs associated with employing workers, and may rise to as much as $6.00 by 2015. However, McClatchyDC reported data from Mexico's National Statistics Institute noted factory employees in the country earned $3.50 an hour in June 2013. While this figure doesn't include benefits and other costs, Mexico does have a universal health system, which may result in lower benefits expenses overall.
According to Braumiller Schulz, Chinese wages were $1.63 per hour in 2011, while Mexican wages were $2.10 per hour in the same year. This shows Mexico's wages have grown less compared to China, where wages have skyrocketed in little time, and may continue to do so well into the future.
Not even taking into account Mexico's proficiency and expertise in manufacturing high-quality products and its strong export market, the country provides greater cost savings for U.S. businesses compared to China. Manufacturers should also note the ongoing economic relationship between the U.S. and Mexico, the latter of which benefits when the U.S. economy improves. By analyzing the hard data regarding transportation and labor costs, Mexico comes out on top.
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