Many times, after deciding to establish a manufacturing site in a cost-competitive country, the next choice to make is “Mexico or China?” China has been an attractive option for many companies, but more and more are choosing to manufacture in Mexico instead. Here’s why.
Especially for U.S. companies, Mexico’s location offers huge advantages. It’s easy for managers at U.S. companies to visit facilities in Mexico on a regular basis—you could even get there and back in a day, unlike spending a full day just to get to China. Travel to Mexico doesn’t require as much advance planning.
Your Mexican facility will likely be in your time zone, or no more than three hours ahead or behind, so communication will be simpler as well.
Furthermore, shipping from China to the U.S. takes longer and is more expensive. It currently costs approximately $4,000 to ship a 40-foot container from China, but just $360 from Mexico. This cross-border movement from Mexico to the US is normally done on the same day. If your facilities are in one of the border cities, it can take just 24-48 hours to get your finished goods from the plant to their destination in the U.S. Those same goods could take up to three weeks to arrive from China.
Mexico is now known for having a diverse, highly-skilled workforce—many of whom are at least partly bilingual. Mexico’s labor force is also relatively young, while China’s, like the manufacturing workforce in the U.S., is either facing retirement or disinterested/unqualified to fill the open manufacturing roles.
Additionally, Mexico continues to invest in a steady pool of industrial talent – fulfilling all roles from basic assembly positions to more complex engineering and production – through its educational institutions and training program partnerships with U.S. companies.
Mexico also maintains the same quality and safety standards for production as the U.S. Though when quality issues occur, it’s relatively easy to address them when production is in Mexico. Products can be returned to be repaired or replaced, and managers can visit the plant to fix the problem.
Quality issues in China— which may occur more often due to the distance and communication barriers—are more challenging to fix.
For years, wages in China were much lower than Mexico’s. Now, Mexico’s manufacturing labor costs are approximately 10% lower than in China. When adjusted for worker productivity, the gap is even wider. Mexico also offers steadier wages, so companies can more easily predict labor costs. Exchange rates between the dollar and the yuan and peso also contribute to this change.
A fully burdened labor cost (which includes base salary plus market and mandatory benefits in Mexico) is $5.90 per hour for an entry-level industrial worker, compared to $6.40 per hour in China, with similar margins of cost savings for semi-skilled operators, skilled operators, and engineers.
Moreover, Mexico recognizes a standard 48-hour work week (versus 40 hours in the U.S.) before accounting for overtime pay.
Get a comprehensive look at labor and other manufacturing cost savings. Download Mexico’s Manufacturing Costs Fact Sheet.
Mexico has 12 multilateral trade agreements that provide preferential trade access to 44 countries, making it one of the most open countries in the world for international trade. The USMCA, in particular, has helped transform Mexico’s economy into one driven by manufacturing and exporting.
While Mexico has a strong trade relationship with the U.S., as evidenced by the USMCA, the China-U.S. relationship suffers from battles over import duties and tariffs. Additionally, there is an ongoing geopolitical struggle between the U.S. and China that often impacts businesses operating in both countries.
Overhead and transportation costs are much lower in Mexico than they are in China. When you manufacture in Mexico instead of China, you can expect to save approximately:
Furthermore, Mexico offers a unique business model through its shelter program, which is designed to reduce risk and liability for foreign companies.
Instead of setting up your own legal entity in Mexico, you can run your manufacturing under one owned by IVEMSA. We’ll handle all the permits and licenses, lease your facility, and take care of administrative responsibilities like HR and accounting. You get to focus solely on manufacturing and will maintain complete control over your processes and production.
Learn more about IVEMSA’s shelter program.
Mexico has a strong reputation for protecting intellectual property rights. By contrast, China frequently has problems with counterfeits, and courts are slow to enforce or recognize intellectual property violations.
IP protection has become a greater issue as technology has become more sensitive and sophisticated, particularly with the influx of semiconductor production.
Manufacturers are hesitant to be overreliant on production in China due to the history of challenges involving trademark and copyright protections.
Alternatively, as part of the USMCA, Mexico and the U.S. are aligned with the same level of protection for intellectual property, including stronger copyright restrictions, including digital IP, and enforced criminal penalties for infringement.
Manufacturers save significantly on labor and logistics, though full cost savings are dependent on the number and role(s) of workers needed, production type, and other project specifics.
There are two options a foreign manufacturer has to set up production in Mexico. The first is establishing a standalone entity, which takes seven to eight months or more to complete. The second is through a shelter company, which cuts the setup time nearly in half and is considered the safest way to do business.
There are several industrial hubs throughout Mexico set up for industries that require high-mix, low-volume products, including:
While China is also strong in some of these sectors, cost savings for foreign manufacturers are usually found in textiles and other consumer goods that represent low-mix, high-volume products.
For nearly 40 years, IVEMSA has provided shelter services and support for U.S. and other foreign manufacturers in Mexico. With established networks and flexible solutions in place, companies feel confident in executing their growth strategies, knowing they have the experience and expertise of IVEMSA to guide them.
Get checklists to guide you through the process of setting up a shelter or stand-alone entity in Mexico, covering everything from the initial set-up to finding a site to preparing for trade compliance. Our Quick Guide will give you an idea of the differences between setting up a shelter vs. a stand-alone entity.
GET THE GUIDEContact us today and see how we can help you take advantage of all the benefits of manufacturing in Mexico - without the hassle.
