Mexico and the United States: Competitors or Partners?
According to Bob Cook, the president of the Regional Economic Development Corporation in El Paso, Texas, $420 billion worth of goods passed between U.S./Mexico ports of entry last year. This represents an 18 percent increase from the previous year and the boom in transport is even more striking in border towns. El Paso and Ciudad Juarez saw a 47 percent increase in trade from 2009 through 2010.
Much of this change is due to a shift in production from the United States and China. More and more manufacturing is taking place at the U.S./Mexico border, as rising wages in China, ocean-freight costs and currency appreciation make trade partnerships with Mexico more appealing. As the economics of the international manufacturing market shift, more and more businesses will choose to move some or all of their product production to Mexico due to some of the unique advantages to be reaped from manufacturing in North America.
Changing Labor Costs
China's position as one of the world's premiere locations for offshore production originally grew out of its exceptionally low labor costs particularly in terms of wages paid to its laborers. The average hourly wage in 2003 in China was 62 cents, compared to $5.06 in Mexico during the same time period. This caused many production centers in Mexico to relocate to China. However, in recent years, China's advantage has begun to erode. Average wages more than doubled between 2003 and 2008, from 62 cents to $1.36. During the same, time, Mexico's average wages have risen just 21 percent. Today, the savings when analyzing manufacturing in China vs. manufacturing in Mexico is about 15-25% less depending on the region in China, this gap continues to close quickly.
Geography
One of the biggest advantages that Mexico has over China is its proximity to the United States. This means that products can be shipped far faster and more cheaply from Mexico than from China. Mexico's proximity also means that it is easier for executives in the United States to travel to and communicate with their counterparts in Mexican manufacturing centers. This makes it easier to resolve obstacles and to tweak production in response to changes in the market.
Business Environment
In many ways, the business environment in Mexico is also more amenable for offshore production. Mexico's wealth of universities and higher education institutions means that there is a ready supply of engineers and other skilled technicians to promote a highly efficient and productive workplace. Mexico also has a long-standing tradition of working with United States companies, which provides powerful trade incentives and protection of intellectual property that is not present in China. The Mexican government also recognizes the importance of trade with the United States. As David Aguilar, the acting commissioner for the United States Customs and Border Protection notes, "The community of the trade, to me, is literally the economic engine to our country's economic vitality."
Mexico is the second-largest trading partner of the United States and can be more cost-effective than China in the manufacturing of certain kinds of goods. Production in Mexico is ideal for products that are expensive to transport (such as bulky electronics items) or those that require precise engineering (such as medical devices). Mexico also is better suited for flexible production of products that may be subject to swings in demand, such as customized performance apparel. Overall, businesses in the United States should increasingly look to manufacturing in Mexico as a cost-effective way to get high quality products in a cost-effective manner.