Boston Consulting Group (Part 2): Mexico Manufacturing Is Key to Any Regional Production Strategy
As covered in our last blog post (click here to read it), global management advisory firm Boston Consulting Group (BCG) is enthusiastic about Mexico manufacturing, based on proximity to the U.S. and Canada, cost-competitive labor and high manufacturing output capacity.
In this post (Part Two), we’ll look at another key finding from BCG’s research: why regional production hubs are increasingly important for global manufacturers.
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According to BCG’s research and analysis, it’s “imperative for manufacturers to build flexible organizations and supply chains that can adapt to a global climate of continued volatility and changing trade regimes.”
In fact, the experiences of our global manufacturing clients reinforces the viability of this strategy. No fewer than five of our clients have production in Mexico for North America, complemented by cost-competitive production in Asia and Europe to service customers in those regions. All five of these clients have consistently grown their Mexico operational footprint.
Mexico Manufacturing Supports Geographical Diversity
Obviously, reduced time to market and greater customer proximity motivates global producers to establish more regional sourcing and production. For several years now, BCG has been advocating for manufacturers to adopt a more flexible, regional approach to their global production footprints and supply chains, rather than concentrating production in a handful of “low-cost” developing economies to serve world markets.
Reduced costs – through regional production facilities – enable manufacturers to get their product to market faster, freeing capital for future investment. As a bonus, Mexico provides foreign companies significant advantages through its maquiladora concept, which eases market entry and includes tax incentives for in-country production for qualifying companies that establish through a Mexico entity like Entrada Group.
Entrada Analysis: Mexico’s Advantages for International Manufacturers
- Optimize manufacturing footprints and supply chains. Manufacturers should evaluate the global distribution of their customer base (existing and future). A Mexico footprint offers not only customer proximity but future growth opportunities, flexible supply networks and global balance.
- Consider near-shore production. Mexico’s location offers American, Canadian and European producers unrivaled proximity to one of the world’s largest consumer markets. As our last blog post revealed, Mexico manufacturing operating costs are roughly at parity with costs in China, while Mexico offers substantially better operating proximity and protection of intellectual property.
- Account for shifting trade rules and policy battles. Manufacturers should design their supply chains so that they are better able to adapt production and sourcing in the event of further shifts in trade regimes and instability in policies and exchange rates. Mexico, with its network of 14 free trade agreements with 46 countries, steadily weakening currency, and pro-manufacturing government support as stated above (maquiladora concept, export-friendly IMMEX program), provides ample flexibility for international producers to withstand trade and policy challenges that may arise from time to time.
- Think more strategically about investment in manufacturing capacity. Decisions about where and how to set up production facilities will affect a company’s global competitiveness. Companies must take into account not only current cost structures but also how they could evolve.
- As our “Routes to Mexico” whitepaper explains, there are numerous established models for companies to setup their first Mexico production. Whether you opt for your own standalone operation or prefer to work with a next-generation shelter services provider like Entrada Group depends on your needs. Read our paper for details on all the options.
- Drive broad-based innovation. As costs such as labor and energy approach global parity, manufacturers around the world will compete more on innovation. Companies must not only focus on innovative design but also remain engaged across the R&D spectrum. This will require collaboration with university researchers to translate technological advances into new factory processes and breakthrough products.
Even with the continued uncertainty around the new U.S.-Mexico-Canada trade deal and current global trade tensions, Mexico should be an important aspect of any global manufacturer’s regional production strategy.
Source: Boston Consulting Group