Understanding Manufacturing Costs in China vs. Mexico
December 5, 2016
Content was last updated for relevancy and accuracy on September 30, 2019.
China and Mexico are two of the most popular choices for manufacturing because of the low production costs and high volume environments. In order to choose between manufacturing in these two locations, an analysis of the pros and cons of manufacturing in Mexico vs. China should be considered.
China vs. Mexico Wage Rate Comparison
One of the most important factors to consider when analyzing Mexico and China manufacturing costs is the wage rate of workers. In China, the average hourly wage was significantly lower than that of Mexico for many years. However, recently hourly wages in Mexico have fallen considerably and are now lower than China’s hourly wages. When compared to the United States dollar, hourly wages in Mexico are forty per cent lower than in China. This reversal is due in part to the low birth rate in China and a growing demand for factory workers as the current population ages. In addition to this, Mexico’s wages are much more steady, which assists companies in accurately forecasting financial outcomes.
Ability to Manage Manufacturing
For many companies looking to outsource production, it is important that they be able to manage and monitor operations with relative ease. Geographical location plays a large role in how feasible it is to manage operations efficiently. For United States based companies outsourcing production, Mexico is a much better option because of its close proximity. Mexico has only a few hours’ difference in time from the United States and can be reached with a quick flight. Additionally, flights to Mexico are relatively inexpensive and can be arranged easily. This makes scheduling a technical, customer, or training visit much less expensive and more logistically simple.
In contrast to this, China has a very large time difference from the United States and requires a significant travel time to reach it. Because of this, any visits to oversee production or monitor operations require extensive planning, expense, and time. For many companies, this aspect makes Mexico a much more attractive manufacturing location, especially when getting up and running with a new project.
Shipping Time and Cost
When choosing a manufacturing location, it is vital that companies analyze the respective shipping costs and considerations of each location. Shipping items from China often takes several weeks by boat and within two days by air. However, shipping items from China by air can be quite costly and is generally not the best option economically. In addition to this, duties can sometimes be significant depending upon the governing tariff code. Tariffs on Chinese goods and imports have increased in 2019, making manufacturing costs in Mexico vs. China much more desirable, especially for the states closest to Mexico. On the other hand, shipping from Mexico often takes only one day, does not require ocean freight, and is much cheaper to ship. When shipping items from Mexico there is generally little to no duties required, making it more cost effective.
Intellectual Property Considerations
Any company considering manufacturing their products in another country should consider the intellectual property protections in place prior to selecting a location. The United States has very distinct, comprehensive intellectual property laws in place that protect company rights. In China, there are efforts being made to improve these protections for businesses manufacturing their products.
In Mexico, the North American Free Trade Agreement (NAFTA) protects certain intellectual property rights of business operating there. In addition, Mexico’s membership in the Trans-Pacific Partnership demonstrated its commitment to intellectual property protection. Intellectual property considerations are vital for long term manufacturing cost considerations as any production of counterfeit products may significantly impact profits in the long run.
While China may have been the best option for manufacturing products ten years ago, in recent years Mexico has surged ahead for a variety of reasons. Manufacturing costs in Mexico can be significantly lower than those in China due to the lower wage rates, and lower shipping costs and time. In addition to this, companies that manufacture their products in Mexico will be able to manage operations with much more ease and incur far less travel cost.
How NAPS Can Help
North American Production Sharing, Inc. (NAPS) specializes in outsourced administrative and compliance management services that enable companies to find success manufacturing products in Mexico. To learn more, contact NAPS today.