August 25, 2022

Cost Effective Manufacturing – Mexico Versus China

With the increasing development and focus on e-commerce growth and development, there is now greater ease of access to products’ details and greater pricing transparency for both businesses and consumers.

Businesses are being forced to take another look at their production and find new, more cost-effective solutions if they want to stay viable amidst the ever-growing competitive business landscape.

With businesses reviewing their cost efficiencies and product qualities, they often have one important decision to make: “Mexico or China?” 

While China has enjoyed a near-monopoly on manufacturing for a long time, the country’s rapid expansion has driven up the cost of labor. In this article, we will discuss why Mexico could be a more practical choice for businesses in the USA.

Cheaper Cost Manufacturing of Mexico vs China

When we speak about manufacturing, the cost of products immediately comes to mind. This is directly influenced by the wages of the country.

While China used to be a source of cheap skilled labor, the wages in the country have risen exponentially in the past decade. Further factoring in the effects of foreign exchange rates, salaries in China now cost 20% more than the workforce in Mexico. 

Mexico on the other hand is looking a lot more attractive with the young and increasingly skilled Mexican workforce. Furthermore, the Mexican Peso has declined against the US dollar over the years, making Mexico a competitive manufacturing option. 

Cheaper Shipping Costs Between Mexico and USA

China is located in Asia, more than 7,000 miles away from the United States. With China being so far away, shipments from China can only reach the mainland United States through sea freight. In other words, the only viable way for goods to get from Chinese manufacturers to your customers is for them to cross the Pacific Ocean.

Mexico on the other hand shares a land border. Being geographically located closer to the United States, shipment fees are up to 2 to 3 times cheaper compared to shipping the same goods from China.

Now let’s look at the cost of shipping a pair of jeans to our customers. While the base production cost is about $8 per pair in both countries, this price increases to $10.57 from Mexico vs $12.07 from China after we factor in the shipping costs. 

This comparative cost advantage has placed Mexico as a much more attractive manufacturing destination for businesses. 

Favorable Import Tariffs Between Mexico and USA

It is not news that the relationship between China and the United States is not on the best of terms. Most imports from China are currently slapped with a 25% tariff rate, on top of the standard duty tax for imports. 

The pair of jeans arriving from China would now cost at least $14 after adding in tariffs. This is considerably more than the pair of jeans from Mexico that we got for $10.57. 

The ongoing geopolitical tensions built up over the decade have seen the exclusion of China from the Trans-Pacific Partnership, making outsourcing of production to China less economically viable for businesses. 

Since the establishment of the United States-Mexico-Canada Agreement (USMCA) in 2018, most imports from Mexico are tariff-free. And goods that are not included in this tariff-free category can still enjoy a reduced tariff compared to imports from other countries.

Decreased Speed to market 

As you know, speed to market is hugely important for business. As your goods get into the hands of your customers faster, you can turn over faster. This helps improve cash flow and allows businesses to be much quicker on their feet.

Shipment lead time from China to the US market would likely take three weeks or longe,r while shipments from Mexico manufacturers would likely only require around 2 days turnaround lead time. 

By reducing the lead time, your business can move quicker to capitalize on fast-moving business trends and demands. This is very relevant for certain industries such as fad products (remember fidget spinners?) as well as fast fashion, where businesses have to sell inventory before markdowns and clearances occur. 

Easier Communication with Mexicans vs Chinese

Lastly, language barriers in business communication and time zone differences could be costly for business planning and agility to provide timely business solutions. 

In business, urgent and unexpected issues occur all the time. You may suddenly scramble to fight a fire such as sending an urgent message across to the factory or conducting virtual meetings or phone calls.

By the time your message reaches the manufacturers in China, it would likely already be the next day for you. Compared to factories in China, manufacturers in Mexico will share the same working hours as you, and communication can happen in real-time. 

Start Manufacturing in Mexico Today

The manufacturing landscape has been evolving quickly. Mexico has quietly taken over China in becoming the new global manufacturing powerhouse in the last decade. The country has emerged to confer several advantages to businesses. 

It is both cheaper and faster to manufacture goods in Mexico instead of China. This is propelled by many factors including market proximity, beneficial trade agreements, and cheaper transport cost.

At Zipfox we have a large list of Mexican manufacturers that you can immediately contact and start production with. Click below to get started.

Posted by uber for Zipfox News
Category: Zipfox News

Related Posts