Industry Today 2013: Why does Mexico Remain Manufacturers’ Near-shoring Location of Choice?
The benefits of a Mexico manufacturing presence are analyzed in a podcast interview between Entrada Group’s Doug Donahue and Jason King of AlixPartners. They review AlixPartners’ recent survey, which showed that 89% of companies are considering near-shoring manufacturing to some degree.
Well, it’s not totally, as the Entrada Group discovered. While manufacturers still look to Mexico, the United States is closing the gap. The race is on and here comes the US thoroughbred coming up the backstretch.
According to the second annual AlixPartners Executives’ Perspectives on near-shoring, companies selling into the US market continue to consider near-shoring and/or re-shoring operations.
Amid rising wages, volatile fuel costs, and increasing supply chain risks, a majority of executives (97 percent) say near-shoring decisions are more important than they were last year. For these companies, Mexico remains the near-shoring locale of choice, but the United State is quickly becoming equally as attractive.
The survey reveals that 89 percent of companies considering near-shoring indicate their plans are either complete, underway, or will be underway within the next three years.
Reasons cited include:
Lower freight costs
Lower inventory (in-transit) costs
Time zone advantages
Mexico remains the location of choice for relocating operations, according to 50 percent of respondents. The nation appeals to manufacturers seeking to decrease supply chain costs and improve speed-to-market via near-shoring production previously off-shored. The country has an established and capable industry to assist companies relocating operations.
Its proximity to the North American markets offers these advantages:
Lower inventory costs
Easier management coordination
Improved cultural alignment with North American managers
US in Second Place – but Gaining on the Inside
The United States was the second-most attractive location for near-shoring or re-shoring, and the gap between the US and Mexico narrowed markedly. Last year, executives identified Mexico as the preferred location, ahead of the US by 49 points. This year, that margin narrowed to just 15 points, even as half of respondents continue to expect modest improvement in Mexico’s security/safety situation.
A majority of executives believes the US government can promote re-shoring and identify corporate tax rates, tariffs and duties, and government subsidies as the most important levers. Only three percent of respondents feel health care costs are an important lever. Still, 31 percent feel there is nothing the government can do.
The growing demand in key international markets, the changing economics of manufacturing in China, and the increasing complexity of managing global supply chains continue to force companies to reconsider the location of their manufacturing facilities. If foreign-market demand increases in the near future, as expected by 34 percent of respondents, these trends are likely to continue.
In the Spotlight
The Entrada Group explored the issues in an interview with Jason King, vice president at AlixPartners (a global business advisory firm). The interview was conducted by Doug Donahue, principle and vice president of business development for the Entrada Group. King explained motivations behind the current trend of manufacturers who near-shore or re-shore operations to North America.
Points that King raised include:
Not only are manufacturers near-shoring and re-shoring operations, their subcontractors and vendors do the same
Why offshore competitiveness has degraded for years
How North American manufacturers may be able to realize reduced total costs
Benefits, outside of savings, that manufactures can achieve.
[the original article excerpted part of the transcript article, which can be accessed fully here]