How Does Mexico Compare To China As A Manufacturing Base? [Podcast]

On this episode…

Dan Harris from China Regulation Weblog not too long ago wrote: “Mexico is the New China” and Producers are Shifting There.

Renaud Anjoran and Adrian from the crew discover the subject of nearshoring to places like Mexico, why it might particularly swimsuit US corporations, what Mexico’s manufacturing professionals & cons are compared to China, assessing your provide chain threat, and Renaud finishes off by giving some steering for importers who’re taken with shifting some or all of their manufacturing out of China.

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🎧 Is Mexico A Credible Different For Importers From China? 🎧

Present Notes

✅ Introduction. 

✅ Is Mexico actually a reputable different to China? It relies upon. When creating new electrical merchandise from scratch Mexico most likely isn’t a sensible choice over China (or Taiwan with Chinese language elements), nevertheless, for some easier merchandise Mexico is useful and particularly in case your key market is the USA on account of low lead instances and the power to carefully regulate issues.

✅ What is going on in China (and SE Asia) that’s driving US corporations out to different nations like Mexico?  Political tensions between the USA and China aren’t receding and that is worrying for some producers because of the unstable and dangerous state of affairs. Provide chain threat can also be a difficulty, and this turned very evident when the pandemic hit in early 2020 and importers have been blocked from visiting China and checking their suppliers and merchandise, thereby affected by greater dangers. A really lengthy provide chain can also be dangerous as importers with Chinese language or SE Asian suppliers right now are on the mercy of extraordinarily costly or unavailable transport. Poor administration of the epidemic additionally raises provide chain dangers, too, particularly in locations like Vietnam and India.

✅ Why Mexico is an apparent alternative for some US importers affected by provide chain dangers in Asia. It already has plenty of manufacturing and the workforce wages are far decrease than within the USA, some say it’s even cheaper than China for manufacturing.

✅ Is shifting to Mexico one thing that might be extra appropriate for SMEs slightly than MNCs? Not likely, it depends upon the merchandise being manufactured, although. A whole lot of SME commerce is relabelling normal off-the-shelf merchandise and never creating new merchandise, due to this fact it might be onerous so that you can transfer away from these suppliers, a lot of whom are in China. Giant MNCs who develop their very own merchandise and place large orders with numerous suppliers who have already got manufacturing operations all over the world can have a neater time shifting and persuading key sub-suppliers to comply with with the intention to retain their enterprise. That is frequent within the auto business.

✅ May nearshoring to someplace like Mexico be dearer than having a provide chain in Asia? It may be. It depends upon your wider provide chain. In the event you’re assembling in Mexico, however your whole elements are coming from China then you definitely’re not going to cut back plenty of prices and can nonetheless have quite a few dangers, akin to the prices of transport and what occurs if elements arrive and are faulty or sub-standard while you obtain them. Returning them to China will take a very long time if it’s even attainable, and the prices of expedited shipments are even greater. You could map your provide chain and contemplate the place the dangers are and the way you may scale back them. Maybe, on this case, if we bear threat administration in thoughts, one other location close to to China could also be a greater choice than nearshoring to Mexico from China.

✅ What advantages does Mexico have? It’s supply of elements in plastic, rubber, metallic, and glass because of the auto business there (when you can attain the suppliers’ MOQs as they’re used to coping with giant auto corporations). There are a variety of enormous digital contract producers, though plenty of what they buy comes from China so the provision chain could be stretched nonetheless, however it’s close to to the USA, although, and it might be attainable to supply plenty of digital elements from there instead.

✅ Are many corporations really shifting 100% of their manufacturing to Mexico, or is it extra of a supplemental location? Actually, most corporations who’ve moved operations to Mexico not too long ago have additionally retained their China operations. It could be that for many who the US market is vital for, they use Mexico as a spot for manufacturing or meeting to allow them to keep away from tariffs (the US Mexico Canada settlement and CPTTP additionally permits tariff-free imports of products from Mexico into the US) and profit from shut proximity for transport accomplished merchandise into the USA, however for different markets all over the world, they proceed to fabricate or assemble and ship from China. Map your provide chain, perceive the whole threat, and don’t simply take a look at the additional margin you can also make by shifting.

✅ What are Mexico’s drawbacks? Mexico’s labor legal guidelines are fairly strict and may very well be considerably stunning for some American importers who’re used to less-protected labor. It may be unsafe in some areas, akin to muggings, kidnapping, gun crime, and so forth, however Mexico may be very giant and it’s not honest to label it as an ‘unsafe’ nation.

✅ Renaud’s tips about managing the method of shifting some/all manufacturing out of China. Take into consideration diversifying your provide chains into different areas. China, Taiwan, and SE Asia are in shut proximity and more likely to be affected by the identical occasions so attainable choices can be locations like India and Mexico as these places aren’t going to be influenced by China as a lot.
If plenty of crucial elements (particularly custom-made) come from China you’d higher maintain meeting close to to China to cut back high quality and reliability dangers. To scale back dangers it’s higher that you simply use normal elements that may be obtained freely if attainable as this reduces reliance n China.
If taken with Mexico, studying about shelter corporations is a good suggestion as they supply entry into the nation by caring for the paperwork, workers, renting premises, sourcing elements, and way more if you wish to arrange manufacturing there, leaving you to concentrate on processes, specifying what you want, and so forth.

✅ Wrapping up

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