How the Coronavirus Impacts Mexico As a Manufacturing Option

04.13.20

This post has been updated from its original publish date of March 16, 2020.

 

COVID-19 continues to make an impact on a global level through travel restrictions, quarantines, and a heavy disruption to the economy. With limited resources, supply chains, and employees to carry the brunt of how this pandemic has affected the U.S., it makes sense for manufacturers to diversify their operations, even more than before.

 

Per a Forbes article published March 1, 2020, the managing director of China Beige Book (the largest private in-country data-collection network to track the Chinese marketplace) said “Chinese auto manufacturers and chemical plants have reported more closures than other sectors.” Between workers not returning back to their positions and shipping problems of supply chains, companies want to shift their operations and manufacturing in Mexico is at the top of the list.

 

Since the beginning of this crisis, the U.S. has not had enough face masks, ventilators, or other medical equipment necessary to keep up with the spread of COVID-19 and care for patients properly. Mexico’s industrial workforce is working diligently to provide life-saving devices to the U.S. as a means to help with this effort. As reported by the Washington Post, Tijuana is one of the world’s most prolific hubs for medical equipment production. It has helped make Mexico the biggest exporter of medical devices to the U.S., which is what’s needed, especially now. The city has the highest concentration of Mexico’s medical device firms, 70 percent of which are American-owned.

 

While the U.S. and other countries are relying on this production from Mexico, it’s of high importance for all to keep employees safe. IVEMSA is working closely with medical device manufacturers and other essential industries to remain open and implement the highest possible level of health and safety during this time. This greater call-to-action from the U.S. to Mexico’s workforce only strengthens the ties between the two countries.

 

Historically, NAFTA and now the recently approved U.S.-Mexico-Canada (USMCA) trade agreement shows how well Mexico has worked with the U.S. and Canada in terms of trade agreements, respecting intellectual property, treating workers fairly, and providing good working conditions. Conversely, China’s relationship with the U.S. for business is often difficult to navigate. Most Chinese factories don’t follow U.S. rules and regulations with regards to IP protection, working conditions, labor, etc. and recent trade war issues already had U.S. manufacturers on alert.

 

As COVID-19 continues to create dire situations, especially among the health care community, turning to Mexico as an extension of support has greatly benefited the U.S. in more ways than one. Having an influx of life-saving equipment within such close proximity has never been more important. However, U.S. manufacturers had already begun moving their operations to Mexico or at least diversifying them so as to not rely on a sole country for its manufacturing needs prior to this pandemic.

Why Many U.S. Manufacturers Already Started Moving to Mexico

The challenges U.S. manufacturers have faced over the recent few years have led to the decrease in companies relying on China as the main international powerhouse it once was. It’s certain that a majority of U.S. companies have turned to Mexico as its favorable trade partner, a country without these challenges that provides ample opportunity.

 

In fact, the 2020 International Trade and Trends in Mexico survey revealed a large majority of executives were already planning to move business to Mexico from China within the next one to five years. Eighty percent of them plan to make the move within two years. Due to the country’s cost-effectiveness through Mexican labor rates, the IMMEX maquiladora program, shipping costs, and free trade deal with the U.S., Mexico is the go-to option for many. The ongoing competition between China and Mexico had begun to swing heavily in Mexico’s favor over the past several years due to several reasons.

 

For instance, the proximity to Mexico is significantly closer for U.S. companies than China. To spend a day visiting facilities or working with operations managers on a regular basis is easier and more efficient when traveling across the border versus traveling across the globe. It’s also less costly. Shipping products from China costs and takes longer than receiving finished goods from Mexico to a U.S. destination. It’s more advantageous when managing supply and demand, as well as maintaining successful workflows, all of which deliver greater profitability to the manufacturer.

 

Additionally, Mexican labor costs are still lower than China’s wages with Mexico having a higher level of productivity. Statistics show manufacturing labor costs per hour in China are $5.80 compared to Mexico’s at $4.10. Mexico also offers steadier wage increases and changes that companies can predict and plan for in advance. Plus, there are protocols in place through the USMCA that protect workers’ health, safety, and wages.

 

Proximity, productivity, and cost-effectiveness, plus global issues, such as trade deals between the U.S., Mexico, and Canada and the effect of the coronavirus, have only added to the benefits of moving operations to Mexico. It’s amplified the end of an era for many where China is the main manufacturer as the U.S. continues to operate under changing circumstances and works toward establishing a new norm.

 

IVEMSA continues its partnership with manufacturers who need assistance navigating under new and/or temporary regulations due to COVID-19 and providing what’s needed for the health and safety of their employees while continuing to operate on a greater scale.

 

Schedule a call with us today to go over your manufacturing options. Together, we will form a customized plan to meet your company’s needs and goals.

 

Sources:  https://www.nytimes.com/2017/03/31/business/us-mexico-trade-medical-devices.html; https://www.forbes.com/sites/kenrapoza/2020/03/01/coronavirus-could-be-the-end-of-china-as-global-manufacturing-hub/#656a5a952988; https://www.statista.com/statistics/744071/manufacturing-labor-costs-per-hour-china-vietnam-mexico/

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