In 2009, Mexico was the region with the highest number of investment projects by Chinese companies outside China.
Citing Mexico's cheap production capabilities, more than 50 Chinese corporations have established a presence in that country in recent years. The group includes Foxconn, the world’s largest contract manufacturer, which maintains 1 million square feet in industrial buildings in Jeronimo Industrial Campus and a labor force of more than 20,000 in the state of Chihuahua.
Technology manufacturer Lenovo also began producing laptops in 2009 at its new $40 million manufacturing facility in Monterrey -- Lenovo's largest manufacturing investment outside of China. It would seem that Mexico may indeed be China's "new China."
Does that mean it's time to reverse the flow of offshore manufacturing? It’s a question I’m asked nearly every day by OEM customers. My response? The same thing I told them 10 years ago when they asked about the prospects of offshoring to China: The answer depends on the type of product you are looking to outsource, your target market, and your expectations from the outsourcing engagement (cost savings, access to new markets, etc.).
The decision to outsource -- regardless of where -- must be based on a thorough total-cost-of-ownership analysis, which includes (but is not limited to) consideration of labor costs and availability, freight/transportation method, travel, foreign exchange, and proximity to target markets.
There is simply no one-size-fits-all solution to manufacturing outsourcing, and if there is one thing OEMs should have learned over the past several years, it’s that "everyone is doing it" is not adequate grounds for choosing one region over another. That being said, here are a few other points you might want to consider:
Mexico does have the potential to offer electronics manufacturing services at rates that are competitive with the so-called “China price,” which was initially about 40 percent below US costs but is now reported to be only about 5 to 10 percent less, due in large part to the swift increase in labor rates in the region. As a result, the average manufacturing wages for Mexican workers are now only 14 percent higher than those of their Chinese counterparts, according to Mexico’s Finance Ministry. Factor in freight costs, which have more than doubled between Asia and North America in the past five years, and Mexico starts to look pretty good.
Then again, Mexico cannot come close to matching the prospects of penetrating into one of the world's largest emerging markets. China has a rapidly expanding middle class population, with growing disposable income. According to some estimates, China will have more than 600 million middle class citizens by 2015. If gaining home-turf access to an abundance of potential new customers is your ultimate goal, China is definitely the better bet.
So, is Mexico the new China? Both regions have a lot to offer, but neither can wholly satisfy the full gamut of requirements across the diverse community of electronics OEMs. Do your homework, and you’ll have your answer.
Your line of thinking (adds on to what I was saying in my post) and makes perfect sense.If you want to target the Chinese market you have to be based in China or S.E.Asia.No doubts about that.
When it comes to Supply-Chain,everything has become so discrete and distributed that if Manufacturers feel they have an obstruction in one part of the business because of Tarriffs,Component costs,etc they can very easily(within 2 years tops) move production elsewhere.
For them its just a question of ripping up the existing plant and moving it to a more favorable location(their suppliers will also see the rationale of moving if it makes economic sense for them).Let me give you an example,the Japanese Auto companies today are facing heavy strikes in China from Labour who want the companies to raise Wages by 20%+.And right now they have agreed to these demands.But if Labor demands 20+% wage rises again for next three years straight the Auto companies will see their margins wiped out.So they are building back-up production facilities(they already exist) just need to be expanded further in Thailand and they are looking aggressively at Vietnam/Cambodia.The Japanese also are cutting production at home in Japan because the rising Yen has made Production in Japan very expensive.
Most Global manufacturers have that capability.
So its not really a big deal for manufacturers today to move production elsewhere depending on costs.
You are very true in your line of reasoning that the Drug war is a big problem prohibiting new manufacturers from moving there.
But in my opinion it really depends on which manufacturers you are speaking about.Western/American manufacturers would most probably think twice before moving to Mexico today(given the Violence that the media harps on again and again).But chinese Manufacturers??? I am not sure.
You have to understand that chinese companies operate in far more dangerous zones than Mexico(for instance Western Africa & Afghanistan) where their employees are routinely kidnapped or even killled.But that has'nt stopped them from increasing their investments there.So I don't think this current bout of negative publicity for Mexico will affect Chinese manufacturers decisions on whether or not to outsource production to Mexico.The Chinese think very,very long-term.
I wonder how reports of drug wars in Mexico is affecting business in the country and foreigners' willingness to relocate production to the country. If I have a company, I personally wouldn't want to outsource to Mexico. Like "thank you very much. I understand your labor costs are now closer to those of China but how about some safety first?"
Whether manufacturing centers in Mexico have been impacted or not we really don't know but the image Mexico is getting worldwide right now is that of a drug-war zone. There are reports each week of policemen and politicians getting killed and the Mexican government seems incapable of stopping this. Why don't we take a poll. How many companies in Mexico or considering moving to Mexico are worried about the security situation in the country? Sure, it may make financial sense to relocate facilities to Mexico but good luck getting some of your current employees to move there!
China's trump card in high-tech manufacturing--heck, any sector of the economy for that matter--is the potentially huge purchasing power its growing middle class is likely to wield globally. If Gerry Fay is correct and China ends up with 600 million middle class people, that would represent a humongous target for all manufacturers. It would be dumb therefore not to have a presence in China or in a location close by from where these new consumers can be serviced. You are right, the devaluation of the U.S. dollar will play a role but is it a sustainable action on the part of the Federal Reserve? Will they really be able to keep it up just to boost domestic production?
By the way, there's another factor at play here. The electronic supply chain is not so easily manipulated. Companies outsource to areas where the support structure is in place to facilitate production. It's taken China decades to compile the group of support services providers -- aw material providers, fabricators, component vendors, contractors, etc.-- that electronic equipment makers now depend upon to service their activities. It won't be that easy to shift all that back to another location. We are likely going to see China's role continuing to increase though perhaps at a lesser pace.
Looking at the rate at which the US Federal Reserve is devaluing the US Dollar today,Crude Oil will very soon be over USD 100/Barrel.From there the all time Highs of USD 147/Barell are not that far away.At those prices will it be cost-competitive (along with much Higher Manufacturing wages in China) to manufacture anything,Big and Bulky for US Consumption???
I don't think so.
In that sceanario Production of Big,Bulky items will move either back to America or to Mexico from where its just a short truck ride(and Mexico falls under NAFTA too) for big items to enter America.
On the other hand if you are looking to manufacture for Chinese consumption then you would need to based either in China or South East Asia(most of which continues to have very cheap labor compared to China too).
If the only benefit Mexico holds is cheap labour than i think it is far from being the next china.
How much overhead does cheap labor actually save? So yes as Gerry says, this is not a linear equation with just two simple variables, its more complex. Cheap labor is not enough reason to move to mexico, if it were, Africa would have been a better choice, there are countries were people work only for food as their pay.
Chinese companies venturing into Mexico to set up manufacturing operations are eager to get a strong position for their products in North America. NAFTA gives them certain advantages that they may not get if the products were made in China. Aside from this, Gerry's points in the article are important. Companies must evaluate the total cost of ownership before deciding where to site manufacturing facilities or outsource production. There are so many issues at play here that I don't think it is possible for OEMs to make such decisions without external assistance. Consulting companies specialized in outsourcing advice can help. So, can suppliers and distribution companies because of their "feet-on-ground" expertise. Does Avnet offer such services?
Hi Gerry--thanks for providing the data on Mexico manufacturing costs vs. China. I think the predominating opinion is still China is much less expensive because of labor, but as Charlie Barnhart once pointed out: labor is a small fraction of costs in a highly automated manufacturing business such as electronics. So I've always wondered how much savings there is really is.
In North America, the electronics supply chain relies heavily on ground shipping. Avnet's Gerry Fay interviews Dave Kevern, vice president, World-Wide Services at Federal Express to get insights.
Start slowly and carefully to prepare for the conflicts materials deadline, but start now. Start by empowering yourself with information about the issues.
EBN Dialogue enables and encourages you to participate in live chats with notable leaders and luminaries. Not only editors and journalists, but the entire EBN community is able to comment and ask questions. Listed below are upcoming and archived chats.
Archived Dialogues
Thailand Stages a Comeback Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Euro-Crisis: What It Means for High-Tech Firms Join EBN Editor in Chief Bolaji Ojo and Contributing Editor Jennifer Baljko on Thursday, July 12, at 10:00 a.m. EDT for a Live Chat on high-tech and Europe's economic difficulties.
Microsoft Surface: Potential Winners & Losers What are the implications for the electronics industry supply chain of Microsoft Corp.'s decision to launch its own tablet PC? Join industry veteran and EE Times' systems and OEM expert Rick Merritt on Tuesday, July 3, at 12:00 pm EDT for a Live Chat on this subject.
Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Peter Drucker famously said "Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window." Yet in the razor's-edge world of electronics—with a lean supply chain and just-in-time demands—the need to know the future is vital.
You've heard the saying "the No. 1 supply chain risk is your people." That hasn't always been the case. But today's complex global supply chain requires a new type of multitalented employee. It's one who understands, finance, marketing, economics, is savvy with technology, graceful with relationships and can think analytically.
Where are these people? Are universities properly preparing the next generation supply chain professionals? How do train your existing workforce for these new, demanding positions?
Brian Fuller, editor-in-chief of EBN, will lead a 60-minute Avnet Velocity panel discussion that will ask and answer these and other questions swirling around today's supply-chain talent challenges.
To save this item to your list of favorite EBN content so you can find it later in your Profile page, click the "Save It" button next to the item.
If you found this interesting or useful, please use the links to the services below to share it with other readers. You will need a free account with each service to share an item via that service.
Tweet This