Many Mexicos within Mexico
Commentary by Doug Donahue
A recent feature in the New York Times declares that US companies are heading to Mexico as ties with China unravel. The headline may be a bit sensational, but overall the article is balanced and does a good job of representing the situation on the ground in Mexico, both the good and the bad.
Perhaps most memorably, the article quotes Christopher Wilson, an economics scholar at the Mexico Institute of the Woodrow Wilson International Center in Washington as saying: “When you have the wages in China doubling every few years, it changes the whole calculus. Mexico has become the most competitive place to manufacture goods for the North American market, for sure, and it’s also become the most cost-competitive place to manufacture some goods for all over the world.”
Our clients, based at our industrial park in Fresnillo, Zacatecas, would agree with this wholeheartedly. In fact, many of them have either explored operations in China or even moved operations from China to Mexico as they reached the same conclusion. They were able to set up a presence in Mexico and still keep overall margins near those in China, without all the headaches.
For Entrada’s clients, 100% of all of their engineering is still done in the US or Canada, with the vast majority of their supply chain input coming from US or Canada. Maintaining those levels with China manufacturing would be impossible.
Many Different Mexicos
The New York Times piece also explores a phenomenon that we at Entrada Group have discussed a lot with foreign manufacturers that are considering Mexican operations – there are many Mexicos within one Mexico.
Scarcity of land, access to labor, logistics, supply chain and more – all the elements that together make up total Mexican in-country costs vary greatly. Generally speaking, total operating costs closer to the US border (think places like Monterrey, Nuevo Laredo or Juarez) can be as much as 40% higher than parallel costs Entrada clients experience at our industrial park in Fresnillo, Zacatecas.
For example, the article cites employee wages in Monterrey at about $17.70 per day. In our industrial park in Fresnillo, our clients would pay about half that amount. Getting a true sense of costs in the different regions of Mexico means either having a longstanding presence there on the ground, or working with an experienced partner like Entrada.
Source: New York Times