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Employees work on the assembly line at the Volkswagen factory in Puebla in this 2010 file photo. Mexico has become the preferred centre of manufacturing for multinational companies looking to supply the Americas and, increasingly, beyond. (STR/REUTERS)
Employees work on the assembly line at the Volkswagen factory in Puebla in this 2010 file photo. Mexico has become the preferred centre of manufacturing for multinational companies looking to supply the Americas and, increasingly, beyond. (STR/REUTERS)

Made in Mexico: China’s unlikely challenger Add to ...

For many industries operating in today’s cost-conscious environment, “Made in Mexico” is becoming a serious consideration in their attempts to shorten supply chains, which potentially allows them to cut costs because quicker delivery times mean that they can minimize the amount of money invested in inventories. As Bruno Ferrari, Mexico’s economy minister, told the Financial Times recently: “The proximity that Mexico offers industry allows companies to reduce their financing costs.”

Rising labour costs in China have presented Mexico with an additional opportunity. According to HSBC, Mexican wages were 391 per cent higher than those of China a decade ago. Today, they are just 29 per cent more. Experts predict that Chinese wages will even overtake those of Mexico within five years.

Mr. de la Calle argues that demographics are behind this. China is experiencing a squeeze in its working-age population. By contrast, more than half Mexico’s 112-million population is under 29, so there will be an abundance of cheap labour until at least 2028.

“Right now, you have to look at Mexico and conclude that it has the best demographics in the world,” says Mr. de la Calle.

At the same time, Mexico’s plentiful working population is becoming more skilled. According to Unesco, the number of engineers, architects and others in disciplines related to manufacturing graduating from Mexican universities has risen from almost 0.4 per 1,000 people in 1999 to more than 0.8 today. To set that in a regional context, the number for the U.S. over the same period has remained roughly flat at 0.6 per 1,000.

Skilled workers are providing an increasingly attractive environment for high-tech companies – Mexico has in recent years become a world leader in the production of computers and mobile telephones – as well as for car companies, almost all of which are now using Mexican engineers to design parts.

None of this means that Mexico is going to replace China as the world’s first choice for manufacturing. With more than a quarter of the share of U.S. imports, the Asian colossus out-punches Mexico in terms of volume.

It also has deeper supply chains than Mexico. From the manufacturing hub of Ciudad Juarez on the Texan border to Queretaro in central Mexico, international companies say that they have trouble finding local suppliers for parts and packaging.

Siemens, for one, says that it has been trying to source its pressure-tight aluminum castings from Mexico but is still using companies based mainly in Europe because of the difficulty in finding local partners.

But from what appeared a dark future just over a decade ago, Mexico has moved into a position that, for now, has made the next few years look potentially very bright.

As Mr. de la Calle says: “Things are good and they are going to get even better.”

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