The Benefits of Manufacturing in Mexico vs. China
Reshoring manufacturing in Mexico vs. China has many advantages. We at NovaLink believe that full service manufacturing in Mexico is the best option for cost, quality, productivity, and delivery. You may consider moving your production out of China and into a different country like the US or Mexico if you are currently manufacturing your products in China but find that the tariffs imposed by the United States are affecting your bottom line. It is always a challenge to move production from one location to another, especially when the locations are across the Pacific.
Moving your manufacturing out of China has a lot of details you’ve got to keep in mind, and not paying attention to those details could cost you later on. Consider some of the factors you should consider when moving out of China, and some of the best Mexico manufacturing options for your company.
For more information on the benefits of manufacturing in Mexico vs. China, click the graphic.
Made in China Myths
Select any of the facts below to learn the truth about manufacturing in China.
The cost of facilities in China has gotten so high that a Chinese company opened an industrial park in Mexico instead of China.
According to Boston Consulting Group, workers in Mexico’s manufacturing sector made 60% more than their Chinese counterparts in 2000. Now they earn 11% less.
“Mexico has continued to stay more productive than China per worker,” Justin Rose, a partner at Boston Consulting Group in Chicago, told Quartz. “Sometime in 2011 or 2012, from a labor-cost perspective, it became cheaper to put manufacturing capacity in Mexico than in China.”
Manufacturing is a major industry in China, as we know. A third of supply chain leaders plan to move manufacturing out of China by 2023, according to Gartner research. Here’s why so many companies are moving out:
- Companies learned from the recent Covid-19 pandemic that they cannot rely on just one supplier. Meanwhile, governments across the globe are trying to get companies out of China. Many companies are considering Mexico as a potential location.
- In 2018, the United States imposed tariffs of 25% on Chinese goods. Importing goods from China into the US was therefore very expensive
- Three or four decades ago, Chinese labor was one of the cheapest in the world. In recent years, it has greatly increased to $14000/year, which is a huge increase. Manufacturing in China has become more expensive.
Manufacturing in Mexico vs. China: Tariffs Eating Your Profits?
The decision to manufacture in Mexico instead of China is an easy one when facing tariffs. Imported goods from factories in China are subject to a 25 percent border tax since July of 2019. These taxes, along with other Chinese tariffs, are designed to increase the price of Chinese products for American consumers and businesses. Your goods will be subject to a 25 percent border tax if you manufacture in China, so either you have to raise the price of your goods and pass the costs on to customers or take a hit on your profit margin.
The good news is that there’s a solution to the China tariff crisis: Move your company’s manufacturing to Mexico. Since the new trade agreements are in place, it’s now easier and cheaper to manufacture goods and services between these nations:
- There are no tariffs for products made in Mexico and imported into the United States that meet NAFTA rules of origin requirements.
- Lower shipping time for goods to get into the United States
- Lower average cost of shipping
- Lower number of days to start manufacturing operations
- Cost-effective ad more productive labor pool
Why U.S. Companies Are Moving Their Supply Chains From China to Mexico
NovaLink believes manufacturing in Mexico with Mexico Supply Chain Services should be easy, fast, and cost-effective. Supply Chain Brain has a list of reasons why companies are moving their supply chains from China to Mexico.
Ground Transport
Goods can be imported from Mexico via ground transport in a matter of days or even hours. This is never an option for goods manufactured in China, from which everything must come by ocean or air. The former is very time consuming (it can often take weeks), and the latter is very expensive.
“Trusted Partner” Status for Customs
The U.S. offers two programs that help facilitate faster and easier Customs processing for U.S.-Mexico trade: FAST and C-TPAT. Initiated after 9/11, FAST is a trusted traveler/trusted shipper program that allows expedited processing for commercial carriers who have completed background checks and fulfill certain eligibility requirements (much like TSA Precheck for air travelers). FAST certification is for drivers; C-TPAT is a broader program that shippers must apply for. Once a company is certified for C-TPAT, its drivers can then apply for FAST. There are no such programs for U.S.-China trade.
A Transparent Landscape
There are also new modern options for transport that make Mexico attractive. Companies can coordinate door-to-door transportation between the U.S. and Mexico, including procurement of trucks on both sides of the border, customs clearance, insurance, financing, and reporting. This allows manufacturers to focus on their core competency, rather than logistics, and can also reduce the need for big in-house shipping and logistics teams.
Smaller Language Barrier
Spanish is the second-most common language spoken in the U.S., making it relatively easy to communicate with partners in Mexico (and find bilingual staff and vendors).
Time-zone Parity
Mexico operates on the same time zones found in the U.S. — Eastern, Central, Mountain and Pacific.