Mexico and U.S. Leading Low-cost Manufacturing Locations

April 24, 2014

Manufacturing in Mexico is stronger than ever. The rise of the manufacturing sector in the country the first quarter of 2014 improved the conditions for rebound of the national economy. International companies operating in the region have already felt the impact. Companies seeking competitive advantage are finding Mexico’s emerging economy one of the most cost-effective production opportunities for relocation. Incentives for setting up manufacturing in Mexico are many. When evaluating manufacturing locations abroad, Mexico presents the best-case scenario for export trade in North America.

Mexico is well acknowledged for production of high quality goods. Manufacturing in Mexico is responsible for much of the auto manufacturer assembly and parts inventory in the United States. This is true of a number of key economies of scale in Mexico, producing products and services for export around the world. The partnership between Mexico and the U.S. poses substantial threat to China’s status as the number one emerging market. North American enterprise stands to dismantle the leadership of China’s low-cost wage economy under the right circumstances.

International manufacturing companies that have moved to Mexico cite selection of the country as a production location based on sustainable planning. Mexico offers a low-cost solution not afforded in developed markets. With rising labor costs in Asia, the return of many companies to North America is not surprising say some analysts. Manufacturers are seeing increased pressure to produce nearby. Selection of a country in the region where an organization’s products are sold generally means sustainable profits.

If costs rise in China, the trend of regionalization will likely give hold. More manufacturers will be return to both the U.S and Mexico to set up shop. Mexico offers the best of both worlds. Only second behind China in manufacturing capacity, it is highly probably that Mexico will emerge victorious in the next cycle. While Mexico’s minimum wage is proportionally higher than China’s, elimination of far higher import costs and extended wait periods on goods, provides ample justification for a return to North America.

Manufacturers agree with such a proposition. The battle with China has been tough. Proximity is more appealing than ever as companies in both the U.S. and Mexico seek low-cost manufacturing location alternatives to the Far East. Mexico and the U.S. are tied as the top choice of North American manufacturers, supporting economist predictions. Furthermore, North American companies often have experience with expansion in their own region. Quality assurance and profits are less at risk in a home or neighboring context.

The promotion of the U.S.-Mexico border region as a lead manufacturing destination is defined by low operating costs and export convenience. Higher quality production is also cited, as North American consumers reject lower than market priced, shoddy goods dumped by foreign manufacturers abroad. Small to medium manufacturers also stand to benefit from expansion to a low-cost location in Mexico. Feasibility studies on small and medium firms indicate that those that make the move have substantially lowered the total operating cost of production.