“Companies Appreciate Mexico’s High-Quality Workforce, Logistics Advantages & Cost Savings”
Marty McFly time-traveled from 1985 to 1955 in the movie “Back to the Future.”
This year, many companies are sort of time-traveling to 2000 — the year they began leaving their operations in Mexico — because they’re returning to Mexico. Abandoning Asia, they’re “nearshoring” — moving some business operations closer to their American market, according to Inbound Logistics magazine’s analysis of nearshoring to Latin America.
The nearshored operations include specialty apparel manufacturers that utilize MFI International as their contract manufacturer in Mexico, as well as other manufacturing in Mexico operations.
Many of these operations moved to China about a decade ago to save money. They’re returning in 2013 to a different Mexico.
This Mexico has a “well-educated bilingual workforce,” according to Inbound Logistics. In this Mexico, more Mexicans — almost 100,000 — earn engineering degrees annually than Canadians and Germans. In this Mexico, managers are so skilled that 80 percent of Mexican plant managers are Mexican nationals.
Nearshoring to become closer to the American market has become more popular in recent years as China’s wages and fuel costs have risen. By 2015, manufacturing in China will cost as much as manufacturing in the U.S., according to Entrepreneur magazine.
Nearshoring to Mexico has become so appealing that senior manufacturing executives by a 37 to 5 percent margin prefer Mexico to Central and South America as their most attractive region for businesses that need to be close to the U.S., according to AlixPartners 2013 Nearshoring Survey.
Surveyed executives cited the following expected advantages of nearshoring, which is also sometimes referred to as nearsourcing, according to the survey:
Lower freight costs — 75 percent
Improved speed to market / lower inventory (in-transit) costs — 71 percent
Fewer supply disruptions — 35 percent
Time zone advantages (easier management coordination, etc.) — 31 percent
Shrinking wage gap – 22 percent
Better quality control – 21 percent
Lower input costs (e.g. natural gas, raw materials) – 17 percent
Improved intellectual property security – 14 percent
Other – 8 percent
Nearshoring Trend Helps MFI
MFI has manufactured goods for American companies for more than 30 years at its plant in Ciudad Juarez, which is on the Mexican side of the El Paso, Texas-Mexico border.
The goods include electronics, furniture, mattress soft goods (mattress covers), medical equipment, pet products, and specialty seats. The nearshoring trend could be particularly beneficial to MFI’s efforts to manufacture specialty apparel.
Sourcing Journal reported that a retailer that manufactured its products in China shifted to Latin America because its factories “have a better preproduction structure and discipline” and are better at joint planning. The products manufactured at recently nearshored Latin American plants include denim, intimate apparel, khakis, t-shirts, work pants, and work shirts.
The industry leaders interviewed by Sourcing Journal said that apparel manufactured in Latin America takes three to five weeks to get to the U.S. market, while it’s “impossible” to bring apparel manufactured in Asia to the same market in less than 90 days. In addition, transportation costs are “becoming prohibitive,” according to Inbound Logistics.
Apparel manufacturers that hire MFI also have the advantage of MFI’s managerial services, including finding talented employees, keeping financial records, completing administrative and legal paperwork, purchasing supplies, and making sure that all local laws are complied with.
Should your company nearshore?
Entrepreneur recommends that prospective nearshorers calculate moving costs, analyze delivery needs, figure out the potential risks of overseas vendors, and study the competition.
IndustryWeek recommends considering labor issues, supply chains, infrastructure, workforce and intellectual property protection.