Foreign Policy

Mexico: The New Industrial Giant

A metal fabrication plant in Saltillo, Mexico

A metal fabrication plant in Saltillo, Mexico

Although it seems as if almost every consumer good is manufactured in China, in recent years, China has found an unlikely competitor in our neighbor to the south, Mexico.

With the drug war raging in Mexico, it may be hard to believe that it is proving to be worthy competition for China’s position as the hum of the manufacturing world. Still, with rising wages in China, Mexico’s appeal is steadily increasing to not only US, but also European companies.

According to Chris Anderson, the former editor of Wired and current CEO of 3D Robotics, Mexico has become “North America’s electronics assembly hot spot.”  His company, which creates drones that shoot photographs and videos, has shifted its operational focus to Mexico because of the practicality that its location offers US companies.

In terms of location, US companies are looking to Mexico because goods that are produced in bulk can be shipped much faster. Not only that, it also provides a higher rate of turnaround. If companies outsource the assembly of their product to China, they more often than not have to order it in bulk in order to get a lower price. This translates to smaller companies not being able to start production of a different version of a product until the first version is sold.

By shifting their manufacturing focus to Mexico, companies are afforded more flexibility in terms of what they want to produce and the current demand for goods within any market. According to Claude Stefan Raab, the General manager of Siemens, a German engineering and electronics corporation, the company has shifted its high voltage equipment plant to Mexico because, “the idea is to respond more quickly to our markets.” While importing goods from China may take anywhere from 20 days to 2 months, in Mexico, it usually takes anywhere from 2 days to a week.

On top of this, rising fuel costs have also increased shipping costs. Not only is it cheaper to ship from Mexico, but it is also more convenient because of the existing system of railroads and railways. In an economy where manufacturers are scrambling to find ways in which they can cut overhead costs, Mexico’s allure has increased.

Also, rising wages in China have added to the practicality of producing in Mexico. With wages in China approaching Mexico’s current minimum wage of about $4.60 per day, China’s allure of cheap labor is quickly diminishing.

Moreover, China’s pull on US companies is greatly influenced by China’s workforce. US companies look to China because of the availability and reliability of the country’s engineers. However, Mexico is currently graduating around 115,000 engineering students a year, about 3 times the US rate. Not only that, but as a whole, Mexico is a much younger country in terms of its inhabitants’ ages; slightly over half of the 112 million residents are under 29. This translates to a workforce that will continue to produce cheap labor for a longer period than China is able to.

US companies that have already benefited from the practicality that Mexico affords include Dell, 3D Robotics, and General Motors while Volkswagen AG and Nissan Motor Co. have plans to construct factories there.

Mexico’s current manufacturing potential is undeniable and sure to continue growing in the coming years. With the practicality that its location and workforce afford US companies, the benefits of shifting manufacturing operations to Mexico are great. In the coming years, Mexico will continue to expand and may even oust China from its position as the world’s industrial giant.