When you say “Moving manufacturing to Mexico” many negative thoughts come to mind: poor working conditions, sweatshop factories, poor quality goods streaming across the border, taking jobs away from American workers.
As you might have guessed: most all the misconceptions about manufacturing in Mexico have no foundation in fact: because NovaLink is committed to the growth and satisfaction of its clients who are currently or will be committed to Mexico manufacturing in the future we want to dispel some of these misunderstood facts about Mexico manufacturing.
Misconception #1: Mexican-manufactured goods are low quality.
The Maquiladora, a young and talented worker population with a mean age of 26 years, has demonstrated the capacity to construct sophisticated products for manufacturing in Mexico. Because the lower cost of production, an assumption is made that the goods must also be poor quality, but this far from the truth: Mexican workforce, because of the high rate of education and skill in production, have expertise comparable to that of U.S. employees.
Misconception #2: Manufacturing with Mexico mostly benefits southern and border states.
While it’s true that Mexico does the most commerce with populous partners such as California and Texas, every single U.S. state participates in manufacturing in Mexico. Statistics from the Wilson Center Mexico Institute indicate that South Dakota, New Hampshire, and Nebraska send more than 20 percent of their exports to Mexico. As of 2015, Mexico was the second-largest export market for northern states such as Pennsylvania, Michigan, Wisconsin, and Ohio. Detroit, in large part due to synergies in the auto manufacturing market, exports $10.9 billion in goods a year to Mexico, more than any other metropolitan area.
Misconception #3: Manufacturing in Mexico hurts and exploits workers in that country by eroding labor standards and lowering wages.
The USMCA partners negotiated and implemented a parallel agreement on labor cooperation, the North American Agreement on Labor Cooperation (NAALC). The NAALC adds a social dimension to USMCA. Through the NAALC, the regional trading partners seek to improve working conditions and living standards, and to protect, enhance, and enforce basic workers’ rights. Over the years, the NAALC has helped to improve working conditions and living standards in Canada, the U.S., and Mexico. It has also raised the public profile of major labor rights issues, including pregnancy-based discrimination, secret ballot voting, protection contracts, and protection of migrant workers. The NAALC promotes the effective enforcement of domestic labor laws in all three countries and highlights cooperation on labor matters in three key areas: industrial relations, occupational health and safety, and employment standards. In addition, USMCA has promoted higher wages. In Mexico, for example, export firms employ one in five workers; these workers are paid 40% more on average than those in non-export jobs. Firms with foreign direct investment employ nearly 20% of the labor force and pay 26% more than the domestic average manufacturing wage.
Misconception #4: Mexico is falling further behind China as a manufacturing base for U.S. markets.
Mexico’s relative competitiveness with China, as a source for U.S. markets, has also received a boost from challenges in China, such as the recent trade tariffs coming from the United States. In recent years, China’s manufacturing wages have been rising absolutely and relative to increases in its productivity. Labor unrest has burst out across China, a phenomenon formerly unknown in the country. This has prompted shifts in manufacturing out of China to low-wage Southeast Asian nations and, for more sophisticated products, to Mexico. While China and other Asian exporting countries are benefiting from the collapse in ocean freight rates, Mexico continues to maintain strong logistical advantages: Geographic proximity, shorter transit time, time zone alignment, accessibility, free trade, cross-border logistics investments (particularly in road and rail), and strong political and social ties with the U.S.
Misconception #5: Customer Service from Companies in Mexico is Poor.Thanks in large part to the decades-old NAFTA agreement and the new USMCA treaty, this is hardly accurate. In fact, manufacturing in Mexico companies have been working with other countries for years after these agreements were signed, Mexican companies are familiar with doing global business. Effective communication and following the customs of the country with whom they are doing business is important in Mexico just as much as it is in the United States.
Misconception #6: Mexican Labor and Cost Are Not Stable.
Mexico’s population is expected to increase 23 percent by 2050. This translates to a greater supply of a young, educated labor pool, which will help maintain them as a low-cost manufacturing destination.
The Carnegie Foundation did a study on Mexican population and its relationship to the country’s employment section and had these positive conclusions: “Productivity has increased in Mexico over the last decade. NAFTA likely played a significant role.” The study also goes on to state: “Mexico has an abundance of labor. Very high population growth rates through the mid-1970s translated into a demographic bulge in the workforce through the late 1990s, as people born during the earlier high-growth years matured and began looking for work. In addition, during the 1980s and 1990s women joined the workforce at increasing rates, in part because of the decline in the reproductive rate, but also out of the need to support household incomes during recurrent economic crises. Overall, the Mexican labor force grew from 32.3 million immediately before NAFTA to 40.2 million in 2002, meaning that Mexico needed almost a million jobs a year simply to absorb the growth in labor supply.”