For over 15 years, China has been the go-to place for manufacturing or buying any product that you can dream of. But in this current climate of geopolitical tensions, trade wars, high tariffs, complicated logistics, extended delivery times, escalating costs, and sudden lockdowns in China, Mexico offers many competitive advantages which are less known about. We’ll introduce them to you here in this article
We’ll talk about manufacturing in Mexico and then about China, as well as how Mexican sourcing company operate. You’ll find that some are quite different from the sourcing or buying agent model used in Asia. After discussing the two, it’s down to you to see which place works for you!
Mexico vs. China Manufacturing - Some Key Comparisons
Did you know that before China became the global manufacturing powerhouse that it is today, there was Mexico? This was because the 1994 North Atlantic Free Trade Agreement (NAFTA, now replaced with the USMCA) signed between Mexico, Canada, and the US-led to many of the top OEMs like Motorola and Texas Instruments establishing their manufacturing in Mexico. This encouraged the growth of advanced manufacturing industries and supporting parts, components, and materials makers in the country, as well as the requisite engineering and manufacturing talent.
The three countries have had trading partnerships that have lasted for more than 40 years. The second-largest provider of goods and services in the United States is Mexico. It exported $371.9 billion worth of goods to the US in 2018; the goods exported include vehicle components, apparel (especially denim products), agricultural products, medical instruments, electronics, and so on.
Here are some key features of Mexico’s manufacturing landscape. We consider these against the backdrop of manufacturing in China.
Labour Cost and Protection in Mexico
Mexico’s workforce consists of highly skilled bilingual engineers and manufacturing professionals. Many of them have worked in the US, Canada, South Korea, China, Europe, and Japan, and thus have wide exposure to international work environments working on cutting-edge manufacturing programs. They are well-skilled in transnational product transfers. Mexico’s educational institutions are also highly regarded, with universities like the Technologicó de Monterrey (ITSEM) and the Universidad Nacional Autónoma de México (UNAM) being at the top 150 global university rankings.
The costs of labor are also lower than in China. Some senior engineers with over 25 years of experience can have salaries of around USD $2500 per month, as compared to China where similarly qualified people could cost more than USD $5000/month.
Does the lower labor costs mean that Mexico has weak labor protection laws and that there are no employee rights? Or that it allows slavery, forced labor, and other unethical work practices? It is entirely the contrary. Mexico has a very strong labor regulation system, with government auditors regularly being sent to factories to check their compliance with labor and social protection measures. Child labor and slavery are being vigorously monitored. Furthermore, unlike in China, Mexican factories don’t house their staff in large campuses or dormitories with strict controls on their everyday activities - Mexican workers have their own private homes to go back to
The current Obrador government also introduced additional laws in 2021 to safeguard the rights of temporary and casual workers, as well as subcontractors. These laws have the objective of affording employer social welfare contributions for these workers and ensuring that they have similar rights to full-time employees.
The benefits that Mexican workers can expect to receive are: full medical insurance coverage, education, paid sick leave, paid vacations, family and medical leave, housing allowance, retirement benefits, performance bonuses, Christmas bonuses, profit-sharing, and employee match-saving programs.
The benefits that Mexican workers can expect to receive are: full medical insurance coverage, education, paid sick leave, paid vacations, family and medical leave, housing allowance, retirement benefits, performance bonuses, Christmas bonuses, profit-sharing, and employee match-saving programs.
China has been increasing its labor law regulations scrutiny and protections for workers. Since 2017, it has stepped up its enforcement of employment law breaches, such as wrongful contract terminations and non-payment of social security obligations. Nonetheless, untold numbers of workers remain in unfavorable work conditions, with many of them forced to work extended hours and there being documented instances of the Chinese government forcing Uyghurs and ethnic minorities to work in factories far away from their homes.
As living standards have improved in China, this has contributed to steadily increasing labor costs which in turn has driven up business costs.
Read More: Top Major Industries In Mexico
Low Tariffs - US - Canada- Mexico Free Trade Agreements
One hallmark of the US-Canada-Mexico 1994 NAFTA agreement was that many tariffs on goods being imported or exported in this region were abolished or kept at very low rates. The replacement 2019 UMSCA agreement essentially retained these tariff rates from the first agreement, with the key exceptions being automotive products, aluminum, steel, and some types of agricultural produce. Mexican exports of these products incurred higher tariffs as the United States wanted to support its domestic industries.
During Donald Trump’s presidency, there was a spate of US-China trade wars which eventually led to the US imposing extremely high tariffs on almost every type of product being imported from China. The average tariff rate on Chinese products is 25% or even more, far higher than Mexico where rates can be 0%! At the time of writing, the current Biden administration has not made any moves to lower the tariff rates.
Quality - "Made In Mexico" and Counterfeit Products
Mexico’s manufacturing industries have been established for some 50 years and they have a long history of exporting to European, Canadian, and American markets. This export experience, together with the similarities between Mexican, Western, and European cultures, means that they are extremely familiar with international quality standards, consumer tastes, and aesthetic preferences. This is particularly the case for apparel and fashion items - one of the main challenges in using Chinese, Indian, or Asian apparel makers is that they are unfamiliar with Western sizes and tailoring practices. There are lots of stories of how entire clothes shipments have to be rejected because the sizes were completely wrong and unsuited to Western physiques.
Mexican business culture is also highly respectful of intellectual property rights. In fact, Mexican businesses are quite sensitive to copying and that is why they have been quite hesitant to put photos of their products online. This is changing though - the COVID pandemic compelled many to sell online and so now they have become less hesitant on this. There is certainly a lower risk of your product ideas being copied or your supplier making counterfeit products in Mexico as opposed to China, where for every one product design there will be countless knockoffs.
Sourcing products from Mexico is far less complicated and more transparent. When working with Asian sourcing companies, many of them can be trading houses, trade brokers, a group of suppliers acting as sales agents, or buying agents who take commissions from suppliers. It is difficult to deal directly with the supplier. This is less the case in Mexico where you just have two types of suppliers - distributors or wholesalers, and the factories themselves.
Location & Logistics
For Canadian and American businesses, Mexico has particular location, time zone, and logistics advantages. It is only a few hours flight to Mexico, whereas China takes at least 12 hours to get to, and traveling it is currently unfeasible due to China’s closed border policy, COVID-zero approach, and international political tensions. Products made in Mexico can simply be driven over the border and could arrive in a matter of days, while in China everything needs to be shipped or flown and takes at least three weeks on average. With escalating shipping costs due to a perfect storm of factors like shipping container shortages, fuel price increases, and labor shortages, Mexico certainly holds strong advantages on these fronts.
The close geographic proximity means that it is also easy to go to Mexico, meet with suppliers, and resolve problems on-site.
What is the difference between Mexico and New Mexico?
Mexico and New Mexico are two distinct regions, each with its own characteristics.
Mexico is a country located in the southern part of North America, sharing its borders with the United States to the north and Guatemala, and Belize to the south. It is a sovereign nation with a diverse culture, rich history, and a population of over 126 million people. Mexico has its own government, currency (Mexican Peso), official language (Spanish), and a wide range of industries and economic sectors.
On the other hand, New Mexico is one of the 50 states that make up the United States of America. It is situated in the southwestern part of the country and is bordered by Texas, Oklahoma, Colorado, Arizona, and Mexico. New Mexico is known for its desert landscapes, vibrant Native American heritage, and unique cultural traditions. It has its own state government and uses the U.S. dollar as its currency. English is the most widely spoken language.
To summarize, the main difference between Mexico and New Mexico is that Mexico is an independent country, while New Mexico is a state within the United States.
Why is shipping to China so expensive?
Shipping to China is expensive due to several factors.
Firstly, China is located far away from many countries, resulting in longer shipping distances and higher transportation costs. The longer the distance, the more fuel, time, and resources are required for shipping, which contributes to higher expenses
Secondly, China is a major global manufacturing hub, with high demand for imported goods. This leads to increased competition for shipping space, especially during peak seasons, driving up prices.
Thirdly, customs regulations, documentation requirements, and import taxes add to the cost of shipping to China. Compliance with these regulations involves additional administrative procedures and fees, which impact the overall shipping expenses. Furthermore, logistical challenges within China, such as complex distribution networks and infrastructure limitations, also contribute to higher shipping costs.
Lastly, fluctuations in fuel prices, exchange rates, and international trade policies affect shipping costs. Fuel prices directly impact transportation expenses, while exchange rate fluctuations may impact currency conversion rates, potentially increasing costs for foreign shippers.
In conclusion, the distance, high demand, customs regulations, logistical challenges, and external factors affecting the shipping industry contribute to the higher cost of shipping to China.
Key Industry Trends
Did you know that since 2016, many of the leading OEMs were already ‘near sourcing’ (where a business places some of its operations close to where its end products are sold)and re-basing their manufacturing in Mexico? This was accelerated when the pandemic started in 2020. When China shut down its factories in February 2020 as part of COVID lockdowns, the resulting global supply chain shock made people realize the problems of having distant manufacturing locations and depending entirely on one location. This led to many businesses diversifying their supply chains to Mexico, and this is something that we’ve been particularly involved with.
Some investment examples are:
- Cummins, a major US automotive parts company, will build its new engines in San Luis Potosi, Mexico
- Bosch will establish a new refrigerator manufacturing facility in Nuevo Leon.
Having gone through the major comparative factors between Mexico and China, now it’s over to you to explore both and see what possibilities each location holds for your business.
