In recent years, there has been a migration of manufacturing operations to Mexico as the widely popular Maquiladora (IMMEX) program has expanded. While this has been a large topic of debate in the last year with regards to both political and social ramifications, there is no denying that the manufacturing industry has recognized the tremendous potential that offshoring to Mexico offers.
Mexico is the third largest trading partner with the United States and the United States’ third largest supplier of imports, making Mexico an extremely influential international marketplace affecting the United States. Below are some of the common misconceptions regarding industries moving to Mexico, as well as some of the top industries that moved to Mexico in 2016.
Offshoring vs. outsourcing
When discussing industries that moved manufacturing operations to Mexico, it is vital to provide a baseline understanding of the Maquiladora program, as well as the important differences between offshoring and outsourcing. There are a number of common misconceptions associated with these terms that can muddle important distinctions when used interchangeably.
The Maquiladora programwas originally established in 1964 but did not become mainstream until the passage of the North American Free Trade Agreement (NAFTA). The Maquiladora program allows non-Mexican (foreign) companies to import raw materials and components into Mexico, usually tax free, with the intension of transforming them into a finished good for exportation. With this in mind, it is important to consider the differences between offshoring and outsourcing.
Offshoring occurs when production operations are performed in another country but still controlled and directed by the manufacturer, while outsourcing occurs when a company negotiates a contract with a third party to perform a specific function, such as manufacturing a finished good for a specific unit price. Due to distance, the language barrier and vast cultural differences, China experienced a lot more outsourcing, or “contract manufacturing” than offshoring, whereas Mexico is the complete opposite.
Top manufacturing industries
While there are an array of manufacturing industries worldwide that possess unique specializations and niche markets, some of the top overarching manufacturing industries include: automotive, electronics, chemicals, textiles, medical devices, aerospace, consumer products, and clean energy products.
Industries that Moved to Mexico in 2016
There were many industries that moved to Mexico in 2016, but below are a few of the most notable offshoring moves.
- Industrial production & Aerospace
o Rexnord Corp., Indianapolis: In October of 2016, Rexnord, which produces industrial bearings at an Indianapolis factory, notified the United Steelworkers Union that their intention was to offshore their manufacturing operations to Monterrey, Mexico.
- Consumer products
o Mondelez International, Chicago: Nabisco, which is a subsidiary of Mondelez International, is known for their popular Oreo cookies. Nabisco has been producing their trademark Oreo cookies in Chicago since 1953, but in July of 2016, Mondelez International announced that they would be offshoring their manufacturing options to Salinas, Mexico.
o Brake Parts Inc., Chowchilla, CA: Automobile manufacturing companies have continued to make the decision to offshore their manufacturing operations to Mexico and in August 2016, Brake Parts Inc. joined the ranks as they offshored their factory work producing brake calipers to Nuevo Laredo, Mexico.
These are just a few well-known examples of industries that have moved to Mexico in 2016. The reasons governing their decision to offshore manufacturing operations remain stable across the board: manufacturing in Mexico increases profits and reduces overhead costs on direct labor. The financial analysis between keeping manufacturing operations in the United States, compared to offshoring manufacturing to Mexico, paints a clear picture that industries that move to Mexico experience much higher profits, a reduction in labor costs and day-to-day operational expenses, while still maintaining a high-quality product due to the increase in skilled labor availability in Mexico. A lot of this is the direct result of the Maquiladora program.