More and more companies are deciding to offshore manufacturing to countries like Mexico and China. China has had the edge but Mexico workforce now seems to be the country of choice for the majority of American manufacturers for a variety of reasons.
In addition to secure, dedicated facilities along the U.S. border, Mexico has the youngest workforce in the world at age 29. In addition, its educational system is now producing significant numbers of highly trained workers. In particular, 90,000 engineers are currently graduating from Mexican universities every year. Combining these factors with the proximity of our southern neighbor produces a significantly reduced lead time versus their Chinese competitors and decreases costs across the board.
Shorter Lead Times = Reduced Costs
Many companies worry that security and safety procedures will severely impact any train or truck traffic originating in Mexico. The U.S. and Mexican governments have recognized this concern and implemented procedures, in particular C-TPAT certification, to ease any fears.
The result is a dramatically shortened lead time from Mexico vs. China. The standard example show a Chinese shipment taking 2 days to port, 14 in ocean transit and 10 days to Chicago. The same trip from a Mexican facility on the border including customs takes only 5 days.
As you can imagine, the cost savings are significant; the approximate cost from China is $5300 vs. $3000 from Mexico for a standard 53” container. The latest low cost country (LCC) analysis performed by Alix Partners confirms Mexico as the lowest cost provider.
The Predominant Choice
As mentioned, manufacturing in Mexico is the overwhelming choice for companies considering the move. A recent poll indicates that Mexico is preferred by 63% of the respondents, almost ten times more than its nearest competitor, Brazil. In addition, most of Brazil’s output is for home consumption and is not available for export to the United States.
The Obvious Solution
Outsourcing to Mexico manufacturers located on the border provide lower freight costs, improved speed to market and reduce inventory costs as fewer goods are in transit. The result is an opportunity for U.S. companies to lower costs and ease management’s burden. In addition, the specter of rising fuel prices can only further widen the disparities and lead times between Mexico and China.