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The Undeniable Advantages of Manufacturing in Mexico vs China
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Manufacturing in Mexico accounts for over 17% of the country's total gross domestic product. That's 6% more than that of the US, and 7% greater than Canada's. Overall, manufacturing is among the most significant contributors to Mexico's GDP.
With the recent U.S.-China trade war, the United States-Mexico-Canada Agreement (USMCA) going into effect and the covid-19 outbreak more global manufacturing companies are expanding into Mexico to be part of the nearshore network of North American manufacturing and supply.
Mexico is a thriving hub for a variety of manufacturing industries including medical devices, aerospace and defense, electronics, and of course the automotive industry, one of the most popular industry sectors with an export value of $173 billion.
So, the big question now is, why exactly do foreign companies choose to manufacture in Mexico?
We've rounded up some of the top answers below, so be sure to read on.
Continuously Improving Workforce Quality
T
he workforce in Mexico is well-educated, plentiful, and reliable.
A close working relationship between the major industries in Mexico and higher education has made this possible. Curricula at universities and technical schools are now shaped by the specific demands of the Industry.
Mexico’s Industry offers an experienced and skilled workforce for direct labor needs but also trains high-level manufacturing and management positions for indirect labor needs.
Favorable Labor Rates
According to Trading Economics, the average was in Mexico is US$3 per hour as of May 2020.
The US, on the other hand, has a minimum average wage of $22.75 per hour up to the same date.
While Mexico's labor costs seem extremely low, keep in mind that it also has a low cost of living. Everything, from consumer prices to rental rates, is more than 100% lower in Mexico than the US.
China manufacturing wages have continuously gone up since 2010. Back then, Trading Economics reported their average yearly wage to be CN¥30,700 (about US$4,400+). By 2019, it has more than doubled to CN¥78,147, which is approximately US$11,300.
While that's still lower than the US average, it's still higher than that of Mexico. Learn more about Mexico vs China Manufacturing.
From this comparison, you can see how cost-effective Mexico manufacturing is. The labor cost, coupled with its proximity to the US, gives manufacturers a huge cost advantage.
| Country | Average Wage |
| U.S. | $22.75 per hour |
| China | $4.50 per hour |
| Mexico | $3.00 per hour |
Reduced Risks of Intellectual Property Theft
In 2013, a Forbes article pointed out that IP theft costs the US up to $300 billion a year. China, according to the news post, was "the biggest offender."
Fast forward to 2019 and claims about China intellectual property theft continued. In this recent review, seven of 23, or over 30% of corporations said that Chinese firms stole from them.
There are far fewer risks of such crimes taking place in Mexico. That's because Mexico implements stringent intellectual property laws. In fact, its IP laws in Mexico are comparable to those enacted in North America.
his kind of protection is one of the biggest benefits for American companies in Mexico.
Geographical Advantage
Many popular manufacturing locations in Mexico are literally only a walk away from the US. The US-Mexico border, which spans 1,933 miles, consists of 48 border crossings and 330 ports of entry. Sixteen of these are pedestrian bridges that 42 million people legally crossed in 2016 to get to the US.
That's how close Mexico is to the United States.
Over 3,000 maquiladoras exist along with the 2,000 miles long United States–Mexico border.
This proximity, in turn, yields many benefits to manufacturing companies in Mexico. The same goes for businesses that would like to partner with Mexican manufacturers.
Here are a few ways that its geography allows for the success of its manufacturing sector.
Same-Day Delivery
Many manufacturing companies in Mexico boast of strategic locations. Some are along the border, including in cities like Tijuana and Mexicali.
That's how products manufactured in Mexico get to the US within the same day. It's also how manufacturing plants in Mexico fulfill shipments to the US within hours. Most importantly, it's how deliveries to and from the US get to their destination on time.
This nearness also allows for production oversight, executives can resolve issues without delay.
Now, imagine what could happen if you outsource manufacturing to the far east. Instead of same-day deliveries, you're more likely to experience same-month shipments.
Same Continent and Hemisphere, Little to No Time Difference
Mexico has the same time zones as in the U.S. — Eastern, Central, Mountain and Pacific.
There are some areas with time differences, but most are only between one and two hours. This poses a significant production advantage. If there's a need to fulfill a new order or resolve issues, then neither party has to wait for the next day. They can catch each other's business hours as they mostly operate within the same time zone.
The complete opposite happens for companies that outsource manufacturing to the far east. For example, most of the major China manufacturing cities are 15 hours ahead of California. These include Shanghai, Beijing, and Shenzhen.
IMMEX Program: Duty and Tax-Free Manufacturing
One of the best reasons to manufacture in Mexico is that it has duty and tax-free benefits. These include the USMCA trade deal and other free trade agreements with western nations. All in all, these programs help cut the costs of Mexico imports and exports.
The IMMEX Maquiladora Program tops the list of these programs. The rough translation to the acronym is "Maquiladora, Manufacturing, and Export Services Industry." It's a government-backed program that incentivizes the establishment of maquiladoras in Mexico.
The maquiladora definition is a factory based in Mexico but run by a foreign company, such as a US-based one. In this case, the factory itself makes and exports its finished product to the US.
These maquiladoras can then import machinery, equipment, and raw materials to Mexico without tax or duty payments. There are restrictions, though. For instance, Mexico specifically has to export the products after being transformed. This is the only way that the goods can be eligible for the tax and duty-free program.
Availability of Shelter Services in Mexico for IMMEX
Just because you're a foreign company doesn't mean you cannot enjoy the benefits of IMMEX. You can still do so with the help of Shelter Companies in Mexico.
The Mexico shelter provider, in this case, is a registered Mexican company. It then serves as a legal entity that "shelters" the foreign manufacturing firm. It then assumes the legal liabilities for the manufacturers it takes "under its wings."
As a foreign entity, you can take advantage of Mexico Shelter Programs and gain an experienced partner. As a result, you can leave the legalities in their hands, and you get to focus on what you do best. Take a look at how the Shelter Program works.
Make Manufacturing in Mexico Work for Your Business
As you can see, there's a long list of advantages tied to manufacturing in Mexico. By setting up manufacturing in Mexico you can find qualified workers while also lowering your labor costs. Best of all, you can reap the benefits of shelter manufacturing and the IMMEX program, even if you are a foreign entity.
Interested to learn more about Mexico shelter programs? Our team here at Co-Production International can help. Get in touch with us now so we can assist you with our Turnkey Shelter Program.
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