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How to Connect with Mexican Manufacturers

The coronavirus pandemic continues to motivate businesses in the United States to seek alternatives to sourcing manufacturing in China. Manufacturing in Mexico is increasingly becoming a viable option for U.S. companies looking to diversify production and labor costs while maintaining a footprint into the Americas.

Over the years as Chinese manufacturing’s global reach expanded, so did tensions between major world economic powers. This reality has been demonstrated by the recent tariff war between China and the United States. The current COVID-19 crisis exposed the vulnerabilities created by the widening trade relationship between the two countries. The United States experienced economic uncertainty due to the extensive or total reliance on China for some critical goods.1

At the same time, the benefits of manufacturing in Mexico continued to grow, driven by the country’s superior labor force, duty-free trade agreements, more stable infrastructure, and close proximity to North America. In fact, Mexico has now replaced China as a preferred manufacturing base location for many U.S. companies.2

What is the Current State of Mexican Manufacturing

As a nation, Mexico has developed expertise in certain industries – especially in automotive, electronics, appliances, clothing & apparel, and medical devices – which gives companies in these industries who relocate or expand their plants there a first mover advantage in lower costs and increasing quality.


According to data from the World Bank, Mexican manufacturing output has increased by more than a third over the past 10 years.3



During that same time span, Mexico has jumped up to third in the list of countries with manufacturing capacity similar to China (2020 figures). 



Manufacturing Benefits of Mexico

For companies manufacturing in China, Mexico manufacturing offers similar direct labor cost, a significant reduction in transportation costs for raw materials and the ability to incorporate just-in-time manufacturing practices into your current supply chain.4


Geography is a crucial advantage that Mexico possesses. Its proximity to the United States and closeness to Canada involve faster and cheaper deliveries, expanded means of transportation, and lower inventory in transit and, therefore, lower overall costs.


The following four benefits provide large incentives for U.S. buyers to consider diversifying their supply chain and manufacturing operations to Mexico:


  • Regulatory & Trade Agreements

Partnering with Mexican suppliers enables companies in North America to access new trading routes with the safety and security of regulatory agreements in place between the U.S. and Mexico.

 

For example, the North American Free-Trade Agreement (NAFTA) gives manufacturers in Mexico easy access to the United States and Canada. For years, governments have focused on building global trade agreements, and now hold agreements with 44 countries that allow duty-free trades.

 

Similarly, the IMMEX Program (formerly known as the Maquiladora Program/Industry) allows foreign manufacturers to import raw materials and components into Mexico, tax and duty free, under the condition that 100% of all finished goods will be exported out of Mexico within a government mandated time frame.5 Mexico’s introduction of the maquiladora program and contribution of high quality at a lower cost has made it a primary source for manufacturing in a variety of industries, including electronics, aerospace and automotive. The IMMEX is a program that enables foreign companies to operate in Mexico under a preferential, low-tax cost structure, while still taking advantage of Mexico’s lower-cost labor.

 

  • Competitive Labor, Transportation & Energy Costs

Companies are constantly looking for cost savings without sacrificing quality. It all starts with the low cost of well-trained labor in Mexico. Relative to the United States, and most other developed countries, direct labor in Mexico is approximately seventy percent less expensive. This competitive labor cost is the driving force behind the success of Mexico manufacturing.

 

The Mexican government has also made a strong commitment to improve the infrastructure in Mexico and security in Mexico to help manufacturers operate without disruption. One area this can be seen is the reliability of the electrical grid in Mexico. For the most part, electricity in Mexico, especially in the major industrial cities, is equally reliable to that of the United States

 

Another area where Mexico has invested in their infrastructure is the rail and highway systems. Trucks can now make convenient trips from central Mexico to virtually any border city on a federal highway system. Commercial railway is also widely available and used by companies manufacturing in Mexico.

 

Regardless of the industry, Mexico is attracting companies from around the world who recognize the many benefits of manufacturing in Mexico. As labor and transportation costs continue to rise in developed countries, Mexico manufacturing is becoming the most cost-efficient option, especially for servicing the United States and Canada. Mexico is positioned to become one of the world’s largest exporters to the United States within the next decade.6


  • Highly Skilled and Productive Labor Force

With Latin America’s population around 650 million, it is quite possible that Mexican manufacturing will boost the region by employing somewhere between 50 and 100 million workers.7 On a regional level, Mexico represents an excellent opportunity for young and prosperous middle-class workers. Mexican manufacturing also will bring more workers into the country’s formal economy.


However, it is not just inexpensive labor that is contributing to the explosive growth of manufacturing in Mexico. Mexico has a large, highly educated workforce that can be compared to virtually any developed country in the world. In fact, Mexico now graduates more engineers on an annual basis than the United States. With multiple generations of manufacturing experience, Mexico also has a large pool of talented operational workers and professional managers who are helping sophisticated companies expand well beyond their original expectations. In fact, certain cities in Mexico, such as Tijuana, now have the largest concentration of manufacturing in specific industries, such as medical devices, across all of North America.8


How to Connect with Mexican Manufacturers

There are three approaches for American companies to expand and augment their supply chains into Mexican manufacturing: (i) buy, (ii) build, (iii) partner. Whether your company decides to buy a plant, build one or partner with a trade partner who connects you with existing suppliers, there are pros and cons that need to be weighed against each option. 


At Exporta Wholesale, we provide U.S. buyers access to hundreds of manufacturers in Mexico, all of whom are pre-vetted to ensure high quality standards for our carrier partners. We believe this makes the third partnership approach your best bet for cost-minded U.S. buyers who want a wide array of options to source their raw materials.


  • Buy a Manufacturing Facility

Buying a manufacturer in Mexico can be preferable to initiating greenfield projects or extending existing operations through a shelter company. Rather than extending their existing operations to Mexico, some firms choose the route of buying a manufacturer in Mexico that is already functional. They prefer to avoid starting an operation from the ground up under the greenfield scenario, or by working with a shelter company in order to extend their existing operations south of the US-Mexico border. 

 

However, purchasing factories in Mexico can occupy a lot of time and energy by focusing on detailed aspects of the operation, including the following: 

  • Human resources
  • Facilities management
  • Import-export processing
  • Transportation and logistics
  • MRO procurement
  • Environmental compliance services

Handling all these aspects, in addition to a large upfront cash payment to purchase the facility, requires time and money – two resources many U.S. buyers do not have an abundance of.

 

  • Build Your Own Supply Chain Infrastructure

Some companies consider the option of building their own manufacturing capacity in Mexico from the ground up. This approach has the benefit of controlling all the operations and capturing the unit economics that would normally be shared between wholesaler and retailer.


However, companies choosing this route will have to contend with several obstacles, including:

  • Acquiring permits for construction, building improvements and environmental compliance issues
  • Going through the process that will result in bringing or expanding electrical service to the plant
  • Introducing new executives to existing and potential suppliers and becoming acclimated to Mexican culture and work habits

Exporta Wholesale is the largest marketplace connecting suppliers in Latin America with buyers in North America. Today, we have a network of over 5,000 Latin American suppliers serving a variety of consumer goods and product categories in the United States. 


The process for seamlessly and cost-efficiently access Mexican manufacturing capacity will save your company time and money. The process is simple, as outlined in an earlier post here. First, companies submit a Request for Quotation (RFQ), which allows buyers to specify precisely what they are looking for, from quality of material, to order sizing and expected turnaround timelines. Next, Exporta’s Proprietary Platform Technology Matches Suppliers to RFQ. Once an RFQ has been submitted, the proposal is automatically routed through Exporta’s entire library of supply catalogs, where a matching algorithm will assign “matching scores” to several Latin American suppliers based on the specifications of the RFQ. Finally, once samples are procured and sent, buyers have the confidence to place purchase orders directly on the Exporta Wholesale site.


Conclusion

Manufacturing in Mexico continues to grow across most industries, both in size and sophistication and is the 11th largest exporter in the world.9 The future of trade under the auspices of the newly negotiated United States–Mexico–Canada Agreement (USMCA) is a priority for investors in the Mexican manufacturing industry.  The implementation of the USMCA could provide a boost for the country’s productive sector, which can make Mexico an optimal locale for a significant inflow of foreign direct investment.

 

Given the present depth, strength, and complexity of Mexico’s manufacturing sector, the country is poised to receive further investment.  As a result of this positive state of affairs, Mexico now holds an economic position of leadership in Latin America that makes it one of the region’s most attractive investment options.  

 

About Exporta Technologies

Exporta Wholesale is the largest marketplace connecting suppliers in Latin America with buyers in North America. Today, we have a network of over 5,000 Latin American suppliers serving a variety of consumer goods and product categories in the United States. 


Exporta’s marketplace offers buyers a full service experience in the origination, sourcing and managing of products. The platform was founded on the idea that curation and service are the most important elements in the buyer’s journey. Exporta’s marketplace is building technology that addresses the pains of sourcing products internationally at attractive prices.

 


References

  1. https://www.tecma.com/covid-19-mexican-manufacturing/
  2. https://napsintl.com/mexico-manufacturing-news/the-benefits-of-manufacturing-in-mexico-naps/
  3. https://www.macrotrends.net/countries/MEX/mexico/manufacturing-output#:~:text=Mexico%20manufacturing%20output%20for%202020,a%209.09%25%20increase%20from%202016.
  4. https://napsintl.com/manufacturing-in-mexico/
  5. https://napsintl.com/manufacturing-in-mexico/the-immex-program-manufacturing-in-mexico/
  6. https://napsintl.com/manufacturing-in-mexico/why-manufacture-in-mexico/
  7. https://www.tecma.com/covid-19-mexican-manufacturing/
  8. https://napsintl.com/manufacturing-in-mexico/industries-in-mexico/
  9. https://www.worldstopexports.com/worlds-top-export-countries/#:~:text=The%20top%2010%20export%20countries,by%20value%20from%20all%20countries.

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