Wage Increases in China allows Manufacturing in Mexico to Gain More Business

Published On: September 12, 2012

NAPS was featured in the article “As China’s Wages Climb, Mexico Stands to Win New Manufacturing Business”, written by Tim Johnson, Mexico Bureau Chief of the McClatchy Newspapers. There was a time where China was much more competitive than Mexico. Companies turned to China for low cost manufacturing, while shipping or other logistics costs were not an issue since the labor cost was so much lower than anywhere else in the world.

As we embark into a new era, it looks as though the tables have slightly turned. Tim Johnson reported: “with rock-bottom wages now soaring in China, the average cost of factory labor in the two nations will be roughly the same.” It is Mexico’s time to shine due to its experienced labor force and its proximity to the U.S. Manufacturing in Mexico has taken on a new light as companies look to streamline operations and stay competitive in this global market.

Rob Moser, President of Casabella Holdings, is highlighted in Johnson’s article. Moser is a chief executive who had to decipher between the pros and cons of manufacturing in Mexico compared to China. Casabella Holdings makes house wares that the New York firm designs and sells. Moser pointed out that the extreme rise in labor costs had made China “less convenient”. Because labor costs are on the rise in China, companies start to evaluate other logistics, such as distance and shipping cost. These factors outweigh the low cost labor that is disappearing from China.

NAPS has witnessed escalated interest in Mexico. Companies that are currently manufacturing in China have contacted NAPS to see the options Mexico holds. The cost of labor aside, companies can reduce lead-time by manufacturing in Mexico. Products take about 90 days to get from China to Mexico, while traveling to China to check on your factory takes up to 16 hours from the United States plus the time difference. Mexico has leverage in this aspect because an executive can arrive at the factory in a matter of hours, and products can reach the U.S. the same day or within 24 hours, depending on where the factory is located in Mexico.

Boston Consulting Group’s Senior Partner in Chicago, Harold L. Sirkin, explained in Johnson’s article how the “fundamentals are pretty favorable to Mexico now.” Sirkin stated “we’re at the point where Mexico is now getting wages that are lower than in China.” As far as his take on proximity, Sirkin made the analogy that fashion can be out of style in the amount of time it takes to get product from China. He did not even reference cost.

Aside from China, NAPS has also seen a lot of movement with Japanese auto suppliers looking to relocate manufacturing to Mexico. NAPS has experienced growth internally by responding to demand and opening an office in Irapuato, Guanajuato to better serve the automotive industry. In short, as the wage gap continues to close, companies must evaluate other factors associated with manufacturing in Mexico compared to China.

Commentary Based on Tim Johnson’s Article: As China’s Wages Climb, Mexico Stands to Win New Manufacturing Business: Read Full Article

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