Why Mexico Edges Out China for Manufacturing
Commentary by Doug Donahue
A recent article “Manufacturing: Mexico Edges Out China” in Inter-American Dialogue’s daily Latin America Advisor looked at viewpoints from some leading Mexico experts on the country’s strong economy. The first writer in the piece, Richard Sinkin, founder and partner of InterAmerican Group in San Diego, notes that over the past decade, hourly wages in China have surged, bringing them to parity with wages in Mexico. What he doesn’t note, though, is that his comparison between the two countries focused on averages found in major manufacturing centers. In the interior of Mexico, hourly labor rates are lower than in parts of China. In Zacatecas state, for example, where Entrada’s manufacturing facility is located, entry-level wages approach $1.45 per hour. So with manufacturing facilities, as with any real estate, location is everything.
Amy Glover, senior advisor at McLarty Associates, writes that Mexico surpasses China as a manufacturing destination because the country offers higher rewards and less risk to companies looking to do business there. She notes that Mexico is ranked 48th in the World Bank’s ease of doing business index, far above China (91st) and the other BRICs. Part of this ease is due to a willingness in Mexico to invest in superior processes such as automation. This allows Mexico to move up the manufacturing value chain, making products of ever-increasing value.
This trend is similar to that of Entrada’s clients, who have moved away from very labor-intensive processes onto enhanced automation and larger investments in capital machinery. As companies become more confident of Mexico’s ability to deliver, they are willing to invest more there. This is the case for small- and mid-size manufacturers, as well as large ones. Thus Mexico is offering the best of both worlds – low-cost labor as well as a willingness to invest in greater technology and advanced processes.
Finally, Rogelio Ramirez de la O, president of Ecanal in Mexico City, notes that Mexico has to continue to invest in its infrastructure if it wants to thrive. He points out that in parts of Mexico, the roads are of a poorer quality than in parts of China. He reminds that in order for Mexico to sustain growth, the country must invest back into education and infrastructure. President Nieto has shown a willingness to make reforms so far, and has indicated education as a priority.