Mexico Manufacturing Solutions & Labor Costs Explained07.20.22
Growth opportunities are dependent on costs, and when manufacturers are ready to expand, one of their first considerations is labor. For decades the U.S. has outsourced its production needs to countries like China and Mexico due to their lower cost of labor. However, as China’s wages continue to rise and trade war and pandemic-related complications continue, the competitive cost of labor in Mexico delivers an even higher value.
Cost Comparison: Mexico Labor Rates vs. the U.S.
Fully burdened direct labor costs per hour at a manufacturing operation in Mexico is $4.58 USD versus $22 per hour in the U.S. This totals $571,584 annually for a 50-person workforce (made up of semi-skilled operators) compared to $2,288,000 in the U.S. with a savings equaling $1,716,416 only on labor.
Comparing costs side-by-side paints a clear picture of how beneficial it can be for U.S. manufacturers. And the savings increase as the headcount gets higher. Here is a breakdown of cost savings of Mexico labor rates vs. U.S. rates when companies expand:
- $3,432,832 for 100 employees
- $5,149,248 for 150 employees
- $6,865,664 for 200 employees
In addition to the overall labor rate being lower, Mexico also follows a 48-hour work week vs. the 40-hour work week recognized in the U.S., thereby, increasing productivity at a lower cost. However, a strong industrial workforce leads to high competition. A shelter services company helps to ensure manufacturers are offering competitive pay and benefits, as well as upholding the type of amenities, perks, and company culture employees expect.
Understanding Mexico’s Labor Laws and Workforce
To reap the benefits of the cost of labor in Mexico, manufacturers must also know how to minimize risk. Foreign labor law is complex and can be difficult to navigate alone. For example, Mexico has specific severance laws which can make even the smallest misstep potentially expensive and damaging due to fines and other penalties.
Additionally, the availability of technical labor with experience in various manufacturing sectors is plentiful. Foreign manufacturers benefit from this minimal learning curve when recruiting new employees. However, companies must position themselves as competitively as possible to quickly recruit and retain the best talent. Partnering with a shelter company like IVEMSA provides an in-house HR team with an established network to handle all recruiting, hiring, retention, and compliance needs when operating in Mexico.
Site Selection and Production Startup
In addition to labor, rent is the next main area where the highest costs occur. Leases in Mexico are often one-third of what manufacturers are facing in the U.S., plus adding in the lower cost of labor. IVEMSA can help determine the best location through a site selection analysis which narrows down researched options based on a manufacturer’s specific needs.
Shelter services also include obtaining all permits and certifications, help to identify local suppliers, and handling all other administrative responsibilities to ensure production launches within three to four months. Essentially, IVEMSA acts as a trusted guide to walk companies through all aspects of Mexico manufacturing solutions to promote growth.