Productivity, Not Just Low Cost, Favors Mexico over China

Commentary by Doug Donahue

A recent study by Boston Consulting Group (BCG) found that Mexico manufacturing exports, due to a widening cost advantage over China, could grow by as much as $20 billion to $60 billion annually by 2017. As the study reports, this is due partly to Mexico’s advantage of proximity to US markets and more affordable energy.

But BCG indicates those aren’t the only reasons Mexico is surpassing China as one of the most cost-effective manufacturing destinations in the world. Equally crucial are 1) Mexico’s 44 free trade agreements globally and 2) the high level of productivity of the Mexican workforce. These attributes set Mexico apart as a low-cost manufacturing destination.

With respect to free trade, it’s clear that the Mexican government’s commitment to, and pursuit of, open commerce sets it apart from the governments of other low-cost manufacturing destinations. That philosophy of embracing transparent business practices and encouraging fair competition aligns with policy in established markets like the US and the EU. No other BRIC country can come close to matching Mexico’s track record for fair trade. And it is a competitive advantage that will only grow, thanks to the clear success the government can point to.

Mexican productivity is also head and shoulders above the rest. When productivity is accounted for, Mexico’s labor costs are predicted to be 19% lower than in China by 2015, according to BCG’s study.
As we at Entrada Group have seen in our shared services manufacturing facility, as well as elsewhere in Mexico over the past decade, Mexican workers embrace new manufacturing strategies and methods (Six Sigma, Kaizen, etc.) quickly and adapt them as their own.

Source: Boston Consulting Group

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