Is the Cost of Labor in Mexico Worth Nearshoring Operations?

Key Takeaways:

• The cost of labor continues to be a contributing factor when choosing manufacturing in Mexico.
• Though Mexico’s industrial labor force has historically been more cost-effective than the U.S., it doesn’t always reflect the lowest rates compared to other countries.
• U.S. and other foreign manufacturers should consider additional cost-saving opportunities when deciding whether nearshoring to Mexico is the right solution.

For U.S. manufacturers, Mexico doesn’t always offer a lower cost of labor compared to China or other countries, such as Vietnam or Malaysia, but there are other savings that nearshoring allows for that outsourcing to these areas can’t accommodate.

To determine if manufacturing in Mexico is the best solution to expand production, business leaders must look beyond the cost of labor alone and consider other areas where they can save.

Here are a few questions to help evaluate which route provides the most opportunity:

Is the U.S. your target market?

The proximity of Mexico to the U.S. is advantageous for U.S. and other foreign manufacturers that want to save on logistics and transportation costs, especially when compared to China and other countries.

The geographical closeness is also beneficial in staying competitive when meeting market demands and deadlines.

Therefore, even if the cost of labor in China is slightly lower, saving on transportation expenses and travel time by nearshoring to Mexico is a more sustainable solution.

Does your production require specific engineering?

Every project is unique and may require specific engineering skills that go beyond an entry-level operator. China is well-known for its low-mix, high-volume production, though Mexico’s labor force better meets a high-mix, low-volume demand.

Mexico invests in its industrial growth through several manufacturing training programs and partnerships with educators throughout Mexico and the U.S. to maintain a steady pipeline of qualified talent to fulfill multiple roles.

Are you concerned about the cost of import duties?

Increasing tariffs and import duties have been challenging for U.S. manufacturers outsourcing production the China.

The U.S. and China do not maintain a free trade agreement, and U.S. duty imports are currently 34%. Meanwhile, the U.S. and Mexico, along with Canada, are part of the USMCA and benefit from exemption from U.S. duty imports that qualify under this agreement.

Furthermore, when manufacturing in Mexico, IMMEX-approved, VAT-certified companies receive exemption from the 16% VAT applied on all temporarily imported goods, materials, and equipment.

Get a Cost Comparison Analysis

To fully understand where to save the most costs, a Mexico shelter company can provide a comparison analysis to determine if nearshoring is the best option.

Depending on each company’s production scope and goals, the slightly higher cost of labor in Mexico likely counterbalances the higher cost of transportation, tariffs, and duties U.S. manufacturers face when operating in China or other regions of the world.

Every project starts with determining costs. Let IVEMSA help you decide whether nearshoring is worth the investment.

Schedule your consultation today.