In 2009, Mexico was the region with the highest number of investment projects by Chinese companies outside China.
Because of its cheap production capabilities, more than 50 Chinese corporations have established a presence in Mexico 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 few years, it’s that “everyone is doing it” is not an adequate reason to choose 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 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.