The 9 Reasons Mexico AND Entrada Group Are the Solution for Private Equity (Part 1)
By Jay Winkler (click to book a meeting with Jay)
Mexico manufacturing is in demand right now. It’s a well-proven low-cost country for manufacturing. It also offers a youthful and abundant workforce with significant experience in core and complex manufacturing.
More recently, Mexico has become the top destination of manufacturers looking for a nearshoring or reshoring option to lessen dependence on China, where uncertainty caused by supply chain delays, tariffs, IP concerns and political issues is causing more risk than many companies are willing to bear.
If you’re a private equity (PE) firm that has manufacturers in your portfolio (or if you’d like to add one to your portfolio), you are probably well aware of Mexico’s strengths as far as driving EBITDA improvements and for efficiency gains. But the challenge has always been: How do you quickly begin or move operations to Mexico, simultaneously minimize risks while doing it and maximize the lasting benefits of being there?
These 9 reasons are the answer to that question…
Reason 1: Labor in Mexico is the most cost-competitive around
If you’re looking for the most affordable labor in North America, Mexico is the obvious answer. Depending on the region of Mexico (more on that below), hourly direct labor costs can be as low as $3-7 per hour (fully burdened), or 20-35% lower than similar costs in the US. This helps drive the manufacturer in your portfolio to EBITDA gains on an accelerated timescale.
For more on this topic, download our Mexico Knowledge Book: You’ll Never Be More Competitive
Reason 2: Mexico’s workforce is young and wants to work in manufacturing
America’s manufacturing industry in on track to reach 2.1 million unfilled jobs by 2030, according to a 2021 study by Deloitte and The Manufacturing Institute. Baby boomers are retiring in droves and the younger generation isn’t interested in replacing them. By contrast, manufacturing is a desirable profession in Mexico. Young people prepare by attending an integrated network of colleges, engineering and trade schools to enter the profession. For example, the average age of a direct-labor worker at Entrada Group’s manufacturing facilities is just 27 years old.
Reason 3: Mexico is an attractive Asia alternative
This one is a no-brainer. Much has been written about the goal for greater supply chain agility, redundance and diversity. With ongoing supply chain disruptions from China, as well as across Asia, manufacturers have looked to Mexico for enhanced customer proximity, not to mention greater political stability and better protection of intellectual property.
Reason 4: Customer proximity
Mexico is well connected to, and easily accessed from, the US by land, rail, sea and air. You simply can’t say the same thing for any location in Asia. This proximity shortens not only transit times but also makes visits from the US (whether by executives, engineers or maintenance staff) far easier and quicker.