The Advantages of Manufacturing in Mexico

The Advantages of Manufacturing in Mexico

By Jose Ruiz

Jose Ruiz serves as Alder Koten’s Chief Executive Officer providing vision, strategic direction and the roadmap for the firm’s future. He is also involved in executive search work focused on board members, CEOs and senior-level executives; and consulting engagements related to leadership and organizational effectiveness helping clients create thriving cultures.

Mexico has replaced China as American companies’ most favorite manufacturing base. It is favored due to various reasons, one of which is it helps to boost the American economy since most raw materials used in those maquiladoras are imported from the USA.

While the ultimate advantage of offshoring the manufacturing to Mexico is the reduced expenses and increased profits for US companies, there are at least ten other advantages.

First

First, Mexico has free-trade agreements with 44 countries. With the USA, the American Free Trade Agreement (AFTA) allows manufacturers in Mexico to access businesses in USA and Canada. The Mexico government provides an environment where foreign investments are encouraged.

Second

Second, labor productivity is high and wages are relatively lower than China. Labor wages in Mexico is 30 percent lower than in China. Mexican laborers are also renowned for their strong skills in equipment parts and labor-incentive industries, which is a plus.

Third

Third, low energy cost due to inexpensive gas. Electricity costs are relatively high, but Mexico’s gas price is renowned for being significantly lower than in USA and China. This fact would encourage US businesses to use gas, which is relatively cleaner for the environment.

Fourth

Fourth, better control of intellectual property rights. With various bilateral agreements between USA and Mexico, American companies have better control of patents, copyrights, and trademarks.

Fifth

Fifth, lower transportation and warehousing expenses. Cross-border land transportation and warehousing drive cost even lower. Thus, expenses saved can be used for other profit-centric activities.

Sixth

Sixth, availability of highly skilled laborers in the manufacturing of certain industries. Mexican laborers are known for their strong skills in automaking and equipment industries, and other labor-intensive industries, such as clothing and textile industries.

Seventh

Seventh, similar cultures, minimal language barrier, and closer time zones between USA and Mexico for more efficient management.   Many Mexicans have relatives residing in the USA and the cultural exchanges have occurred for centuries. Spanish is also a popular language in the USA, making communication barrier almost non-existent. Moreover, English-speaking middle management workforce are plenty.

Eighth

Eighth, with increased standard of living, Mexico would make a great market for products manufactured there. With $10,000 annual GDP per capita, Mexicans have plenty of disposable income. More American products find their market in Mexico, and for products manufactured there, it translates to even lower distribution and warehousing costs.

Ningth

Ninth, excellent access to highly-educated workforce, as Mexico City is the home of 38 colleges and universities. These higher education institutions produce thousands of skilled and educated young individuals, who are ready to be trained to perform as managers and liaisons.

Tenth

Tenth, lower medical costs for laborers and educated workforce. The USA is notorious for its high medical costs. With lower medical costs in Mexico, American companies can afford to hire more employees.

In conclusion, manufacturing Mexico allows American companies to save costs and use a greater portion of their profits for research and product development. This, in return, would increase more production to be manufactured in Mexico. The maquiladora industry provides Mexico with good employment, economic stability, and foreign exchange. A win-win relationship, indeed.

About Alder Koten

Alder Koten helps shape organizations through a combination of research, executive search, cultural & leadership assessment, and other talent advisory services. The firm was founded in 2011 and currently includes 6 partners and over 28 consultants in 4 cities. The firm’s headquarters are located in Houston and it has offices in Guadalajara, Monterrey, and Mexico City with partner firms in New York, Boston, Chicago, Australia, Belgium, Brazil, Canada, Chile, China, Denmark, Finland, France, Hong Kong, Italy, Germany, Netherlands, New Zealand, Norway, Poland, Russia, Spain, Sweden, Switzerland, Turkey, and United Kingdom. We know where to find the executives you need and how to attract top talent to your organization. Our approach to executive search is based on a thorough understanding of the strategic, cultural, financial and operational issues our clients face. Our executive search engagements are targeted and focused on the specific requirements of the position including industry and functional experience, skills, competencies, cultural fit, and leadership style. Our process is rigorous. We take a disciplined and structured approach to identifying potential candidates that meet the position requirements including subject-matter, functional and regional expertise. We use our high-level professional networks, industry knowledge, and internal research resources to achieve results in every executive search engagement.