Why Mexico instead of China?
The latest craze in purchasing
trends has been the transfer of manufacturing to China. Undoubtedly
many companies are reaping benefits from the lower Chinese wages.
However, these lower wages are sometimes offset by other factors that
should be considered in your analysis of where to move.
- Lead Times. Lead times from China, ranging from 90 to 110 days,
force you to maintain extensive inventories and more accurate forecasts.
The proximity of Mexico coupled with well established use of US manufacturing
principles and systems allow you to continue your current material handling systems.
Lead times from Mexico are like those in the US. A given truck can make two to three
round trip border crossings per day.
- Transportation Costs. Bulky products or small to medium lot sizes can
become prohibitive to transport from China. You can also forget about air
shipments. Can you say "slow boat"?
- Plant-to-Plant Communication. China is halfway around the world.
You will only be able to communicate via phone during the start or end of your
normal work day.
- Government Control. Industry in Mexico is regulated via a structure
somewhat akin to US practices. Industry in China is the government.
- Cultural Differences. By this we mean business culture. Mexican
maquilas have been operating under US manufacturing standards for over 30 years
and have accepted them as their own. Since when does the Chinese government have
any regard for the US?
- Sourcing. Approximately 97% of raw material used in the maquiladora
industry is of US origin. If you go to China, expect to change your entire
sourcing scheme. Transportation costs (item 2) are also high for westbound raw
- Start-Up Costs. Unless you have months of inventory and can afford to
stop production indefinitely, you will need new assembly lines for China.
Outsourcing in Mexico allows you to use your existing assets.
- Support Costs. Regardless of where you outsource, you will want or need
to visit on a periodic basis. Consider a flight to China - big bucks, lost time,
jet lag, unfamiliarity with logistics. It's no different than flights you take
within the US. In fact, you will land in the US, stay in a US hotel, rent a US car,
etc. Mexico is just across the border. By slashing this cost you will be more
involved with continuous improvement, cost reduction projects, engineering and
quality issues, lean manufacturing projects, etc.
- Piracy. Come on now, you don't really believe your intellectual
property is safe in China. If your products has a shelf life of more than
two years... well, do I need to say it? The US is Mexico's most important
trading partner. This relationship is well established and reinforced by
need and via various treaties, including NAFTA.
- Mutually Beneficial Relationships. There have been over 70 years of
stable and improving friendship between the US and Mexico. China is a communist
dictatorship whose relationship with us has always been tenuous and antagonistic.
- Subsidies. Sounds like a reason for moving to China since part of
the attraction toward China is its heavy reliance on subsidies. But this will
change now that China is part of the World Trade Organization. Several countries,
including Mexico, have brought suit against China for unfair trading practices.
Businesses currently manufacturing in China will likely be penalized once these
suits are settled. See point 9.
- Control. Here's where several of the previously-mentioned points
come together. In dealing with Mexico:
- You are dealing with US manufacturing standards and systems.
- You can communicate whenever you choose.
- You are dealing with private industry, not government.
- You will be able to visit more frequently at a much lower cost.
- You might be able to arrive in the morning, and return that night.
- You will maintain your raw material sourcing.
- You duplicate your current process using your existing machinery.
- Your product is not going to be copied.
- You have ample legal recourses to protect yourself in general.