In recent years, many companies have turned to China to manufacture their products. China is turning into a dominant force on the market thanks to its promise of low manufacturing costs and a rapid transfer of technology. However, there is another country that promises the same manufacturing capabilities: Mexico. There are numerous reasons why Mexico is becoming a global manufacturing power.
A Growing Force
Mexico is rapidly increasing its production capabilities to cater to bigger, more sophisticated demands. Although the country’s manufacturing force is still in certain industries (i.e. automotive and plastic) we are seeing a huge shift in technology happening across the country.
China, on the other hand, is entering a more matured stage in its development. There is no doubt that the manufacturing companies there can produce anything you want for a reasonable price, but that same production capacity is now being matched by Mexico-based companies.
To further push this growth, the Mexican government is introducing more changes to its economic environment. These new changes, which include tax incentives and labor training programs, will certainly increase Mexico’s ability to further compete with China.
Decreasing Manufacturing Costs
There are two important cost factors that will certainly shift the global manufacturing map: labor cost and energy cost. Both cost elements are crucial in determining the actual production cost of goods in a certain country.
When you compare the changes in costs of manufacturing in Mexico vs China, you will see that they both show different trends. In China, the cost of labor is seeing a bullish trend. It has been increasing steadily over the past two to three years. The same labor cost in Mexico is actually in a steady decline.
The cost of energy is also making Mexico more competitive. As we all know, the costs of gas and most energy sources in Mexico are closely tied to those of the United States. Since energy costs generally less in the US due to our abundant sources of supplies, manufacturing in Mexico makes more sense.
The Free Trade Agreement
The North American Free Trade Agreement gives Mexico a huge advantage over China when it comes to its manufacturing industry. It allows Mexico to export goods to the United States and Canada without having to worry about additional costs. In fact, Mexico now has 44 free trade agreements compared to China’s 18.
This also sets Mexico up for outsourcing. Companies in the United States and other countries don’t need to be involved in setting up an entire manufacturing facility or investing a lot of money in Mexico. Even so, they can still take full advantage of the country’s production capabilities and acquire high quality goods for much less.
It is clear that, based on recent statistics, Mexico is not slowing down. The country is doing its best to strengthen its position as the world’s workshop and factory. Even at this point, it makes much more sense to produce high quality products with the help of Mexican laborers and factories based on the advantages we discussed in this article.