A new Boston Consulting Group (BCG) study titled “The Shifting Economics of Global Manufacturing: An Analysis of the Changing Cost Competitiveness of the World’s Top 25 Export Economies” ranks Mexico as less expensive than China. Even more significantly, it notes that China’s edge in manufacturing cost compared with the U.S. is now less than 5 percent and will continue to shrink as China's Third Plenum reforms are implemented.
When total cost of ownership is considered, U.S. manufacturing is once again cost-competitive. According to BCG, "Overall costs in the U.S., meanwhile, are 10 to 25 percent lower than those of the world’s ten leading goods-exporting nations other than China." While Mexico’s costs appear even better, it is important to analyze whether or not your project is a fit there.
Compared side by side, a best-in-class contract manufacturer in Mexico and a best-in-class contract manufacturer in the U.S. will look fairly equal in terms of expertise and capabilities. Mexico has had a strong EMS industry for several decades and there is a good pool of highly experienced bilingual program management and engineering personnel in most major manufacturing centers. That said, there are several issues to consider:
- Crossing a border carries a cost. Even with NAFTA provisions, products must be imported and exported. While most contractors provide this service, it adds cost and time to the equation. Lower volume production, products with variable demand and products with highly automated assembly may be better produced in the U.S.
- ITAR regulated product and documentation requires export licensing. While contractors in Mexico can build ITAR-regulated product if the appropriate licensing steps are followed and required controls are put in place, it adds complexity to process. Risk of non-compliance is also higher, since foreign nationals may not take U.S. regulations as seriously as employees in a U.S. company would.
- Contractor quality can vary widely. While there are some excellent contract manufacturers in Mexico, there are also companies that invest very little in their business processes and focus on quality. It is very important to audit the facility and meet the team that will manage your program. Also, ask questions about personnel turnover.
- Security can be a concern. Mexico is still a very poor country. While the violence associated with the drug wars has died down, there is still a fair amount of criminal activity that includes carjackings and kidnappings. Employees visiting the contractor should have some basic training in good security practices and, if possible, the contractor should provide all transportation while in Mexico.
Mexico’s competitive cost ensures it will grow as a North American manufacturing center. However, the logistics simplicity and convenience of U.S. manufacturing make it also worth careful analysis.
This post originally appeared on the DigiSource Blog