Survey: Mexico and US Leading Low-Cost Manufacturing Locations
March 27, 2014 (Austin, TX) – When evaluating low-cost locations worldwide for production of goods bound for the North American market, small- and mid-size manufacturing executives say the United States and Mexico are at the top of the list, beating China by a margin of over four to one. These results are included in the report, “Where in the World,” a study released today of competitive manufacturing locations worldwide commissioned by Entrada Group, a company that helps international manufacturers transition to Mexico swiftly and cost-effectively.
The survey was completed in early 2014, with senior business leaders (62% of respondents are VP level or higher) revealing insight into current manufacturing locations, future plans and priorities based on low-cost locations. Ninety-five percent of respondents are from companies headquartered in mature markets (73% from US, 14% from Canada and 8% from Europe), with nearly seven out of ten respondents (69%) leading companies with less than 500 employees, and 95% of respondents coming from companies that manufacture for the North American market.
“With labor costs rising in the far east, it isn’t surprising that companies are considering production locations in their own backyard,” says Doug Donahue, Principal and Vice President of Business Development with Entrada Group. “Additionally, for the past decade or so, manufacturers have seen increased pressure to produce in the same region where their product is sold. Thus, for many manufacturers, the US is becoming more attractive due to rising costs in China coupled with this trend of regionalization. Mexico represents the best of both worlds, giving companies proximity to US and Canadian markets, coupled with fully fringed labor costs that can be as low as $1.50 per hour. This is competitive with hourly labor in much of China, but minus the huge import costs and other range of issues that make manufacturers wary of producing there,” Donahue added.
- Proximity is Appealing — While the US is the most attractive low-cost manufacturing location among all respondents (at 33%), it’s worth noting that among respondents from companies that already manufacture in two or more locations (their headquarters plus one), Mexico and the US tied as the top choice, each with 23% of the response.
- Experience with Expansion Matters — Respondents from companies that currently manufacture at two or more locations revealed a greater appetite for future expansion to a low cost location or locations, when compared to firms producing solely at their headquarters. Of companies that manufacture in two or more places, 67% said they plan additional expansion in the future, compared to just 33% of single-location manufacturers that plan future expansion.
- Quality and the Bottom Line Both Count — While respondents overall rank high-quality production as the most important factor when choosing a manufacturing destination, low operating costs was tops among companies when reflecting on motivation for past expansion, by more than two-to-one over high-quality production.
“Many manufacturers think they are too small to benefit from expansion to a low-cost location, or fear that they lack the in-house expertise or resources for such a move, particularly outside their home country,” Donahue said. “However we have clients at our production facility in Zacatecas, Mexico with as few as 30 employees and they have still substantially lowered their total operating costs. Similarly, companies unfamiliar with the process should engage an experienced provider with knowledge of the local market to help reduce the fear of the unknown in the course of site selection, no matter what country is being evaluated.”
Other Key Findings
- Cost savings are not always realized — Companies that expanded to a “low-cost manufacturing location” achieved their goals to a large extent just half of the time, with half realizing just moderate savings or worse.
- Today China is the most common low-cost location, followed by Mexico — More than half of survey respondents (51%) currently manufacture product in China, with 35% manufacturing in Mexico, the second-greatest response.
- China, Mexico not “either-or” — Of firms that manufacture product in China, 40% also produce in Mexico. Indeed, for many manufacturers, a presence in both countries makes sense for delivery to regional markets.
About the Survey
- Survey Period: Q4, 2013 through Q1, 2014
- Format: web-based
- Survey was conceived, developed and executed by Mach Media, an external research and media firm; sponsored by Entrada Group
- Single-blind survey: Entrada Group was identified as survey sponsor but recipients were not known
About the Respondents
- 95% of respondents’ companies are headquartered in mature markets: US (73%), Canada (14%) and Europe (8%)
- 62% of respondents are VP level executives or higher
- 83% of participants hail from private companies
- 69% lead companies with less than 500 employees
- 95% lead companies that manufacture for the North American market