Considering Mexico – A Solution to the Global Supply Chain Crisis
by Ceci Grover, on Jan 17, 2023 9:27:21 AM
As manufacturers seek to bolster their global supply chain capabilities, we see a significant uptick of interest in Mexico, specifically as a platform to serve the U.S. marketplace. Mexico, the United States’ second-largest trading partner behind Canada, can prove to be a manufacturing solution, but it’s not for every company. To help evaluate Mexico as a solution for your company, Site Selection Group has released a whitepaper entitled Considering Mexico as a Solution to the Global Supply Chain Crisis. This blog summarizes the advantages and challenges of locating a production operation in Mexico. For the full report, please download it by clicking here.
An economy geared for export
Mexico has been gaining ground on China as a key link in the global supply chain for companies serving the U.S. marketplace. The manufacturing sector provides almost 4.5 million jobs in Mexico, almost two-thirds (65 percent) of which are supplied by companies involved in the IMMEX maquiladora (manufacturing for export) program. While two industry segments provide almost half of Mexico’s manufacturing employment — food and beverage and transportation equipment, there is still solid diversity in the country’s manufacturing base. The following table summarizes Mexico manufacturing employment by industry:
Mexico’s traditional supply chain advantages
Mexico offers two principal value propositions to a manufacturer — labor cost and proximity to the United States marketplace.
Labor costs in Mexico will be a fraction of those paid in the U.S., but benefits costs in Mexico can prove costly. Even with the higher benefits load in Mexico, it is not uncommon to see fully burdened labor rates in Mexico that will be only 15 percent to 25 percent of fully burdened labor rates in the U.S. The table below compares base wages for selected production jobs:
Mexico Avg (USD)
|Tool & Die Maker||29.5||$5.08|
Certain operating costs are higher in Mexico
Due to driver shortages that are even more acute than in the U.S., higher maintenance costs for fleets given the lower quality of the infrastructure, and higher insurance costs, transportation lane rates will be higher in Mexico. For more detailed cost data and rates, download the full report.
Mexico can be a viable manufacturing location, but it’s not for every company. While operating costs may be higher in Mexico versus many Asian locations, companies are opting to locate in Mexico in order to build resiliency into their global supply chain.