Wire and Cable Technology International Magazine 2018: The Top 4 Reasons Wire Harness Manufacturers Need to Consider Mexico
As published in Wire and Cable Technology International Magazine
Doug Donahue, one of Entrada’s Principals and Vice President of Business Development, shares his insights into the drivers that are compelling European suppliers to choose Mexico as their production location, and why it is paramount they have a regional partner in place who can successfully help them execute their operations.
The Top 4 Reasons Wire Harness Manufacturers Need to Consider Mexico
By Doug Donahue, Entrada Group
“How will we stay competitive?”
This is probably the most common question that owners and top executives at wire harness manufac-turers across North America struggle with every day as they look to the future and explore ways to grow their business. Competitiveness is also the number one reason all of the wire harness-producing clients at our manufacturing facility in central Mexico came to us in the first place. They were concerned about rising operating costs in the USA and Canada, also conveying that they were facing ever-growing pressure from their customers to lower costs at the same time. This double-whammy led them to consider Mexico manufacturing to complement their existing production.
But beyond lowering operating costs, there are some other common reasons our wire harness manufactur-ing clients turned to Mexico in the first place. And some of those are not so obvious. We’ve distilled these down to the top four for this article, in order to highlight some of the advantages of Mexico wire harness production for other producers that have not yet launched Mexico manufacturing. All four reasons are based on the input of our wire-harness-producing clients in Mexico, with direct quotes from the decision makers at
Our firm, Entrada Group, which assists international manufacturers in establishing and running their own Mexico production to enhance global competitiveness, has had numerous wire harness-producing clients over the years. Each of them produces for customers from numerous different coun-tries and industry sectors.
Reason #1. Cost in Mexico: Both a Push and a Pull
Hourly direct-labor costs in Mexico vary greatly depending on the region of the country. At our manufacturing campus in Zacatecas, Mexico, hourly direct labor for well-managed wire harness operations can be as low as US$1.80 per hour fully loaded. That might be as much as 40% less than prevailing rates found in Mexico near-border locations.
The ability to drastically reduce labor costs in an industry as labor-intensive as wire harnesses is a prevailing factor attracting wire harness makers to Mexico. The “pull” of this high cost savings is difficult to ignore. At the same time, many wire harness producers are “pushed” to Mexico by their own customers, who present them with a mandate to lower prices or lose the business.
Nick Coulter, Operations Manager for Electrex, a long-time Entrada Group client, faced such a proposition, which drove them to approach us about establishing Mexico production. “We had a US customer under immense price pressure with their product and they were looking at all their suppliers for ways to lower cost,” Nick said. “They told us ‘If you can’t figure out a way to cut your cost by 20% to 30%, then we’re moving to a different sup-plier and you’re going to lose our business.’ So we went into immediate action at that point and within six months of that conversation, we had the facility up and running in Zacatecas with Entrada Group. We were forced into it but, in hindsight, it was one of the best decisions we ever made.”
Reason #2. Opportunity to Be a Big Fish in a Small Pond
Wire harness assembly is labor-intensive, so it’s natural that more of this type of work would gravitate to the smaller cities and towns in Mexico, away from the big-ger and more expensive metropolitan areas. Entrada’s campus in the state of Zacatecas fits the “smaller pond” mode, with labor costs significantly lower than what employers would bear in near-border locations or in states like Querétaro, Guanajuato or San Luis Potosi, where competition from bigger OEMs and Tier Ones from numerous sectors is greater.
Yet wire harness manufacturers in places like Zacatecas don’t just gain from lower labor costs. They also benefit by standing out in a relatively smaller market as an employer of choice. In cities like Celaya, Aguascalientes, San Luis Potosi and Querétaro, major household-name companies have set up shop and are vying for the most talented workers in the labor pool. It’s very difficult for a small-to-mid-sized wire har-ness operation to compete in such a labor market. But in a state like Zacatecas, wire harness assembly can be a more attractive alternative to the other mainstay industries, agriculture and mining. Further, there is an established tradition of wire harness manufacturing in the region, due to the presence of Delphi in the area for many generations.
Reason #3. Auto Sector Growth in the US Leads to Wire Harness Growth in Mexico
With a strong economy and the auto sector continuing to expand, wire harness makers that can stay in front of production costs are well positioned. Looking to the future, with the cars and light trucks of tomorrow featuring even more enhanced electronics, connectivity and richer features, the need for sustainably affordable wire harness production is clear.
John White, Executive VP of Telamon, another long-time Entrada Group client in Mexico, put it this way: “The growth in the auto industry has impacted us greatly whether in Mexico or the US. As a result, we’ve seen an increase in our sales to Mexico locations and in interest by our customers to purchase more from that location.”
Reason #4. Mexico Opens Doors to New Customers
With most of our wire harness clients, Mexico has enabled them to gain them new customers and busi-ness, strictly by virtue of their presence in the country. International companies with production in Mexico would always prefer to source product locally for many reasons including cost savings, just-in-time de-livery, shorter supply chain and storage cost savings. In addition, customers in Mexico prefer to work with an in-country supplier that is IMMEX compliant, which is a benefit that Entrada clients enjoy because we are their legal entity of record in Mexico. That means our customers operate under Entrada’s IMMEX license and are fully compliant with all Mexico Customs laws, making it easier for them to bid on projects from in-country customers. “Other large companies entering Mexico has opened some doors to Telamon to supply product which they may still be purchasing abroad,” John White says. “A lot of our customers have put a footprint closer to our facility and that has helped us get in to broaden our portfolio and work with new companies that we haven’t in the past.”
Mexico has proven beneficial to Entrada Group’s many wire harness manufacturing clients over the years. An aﬀ ordable labor pool, proximity to the USA and Canada and a strong tradition in the wire harness sector are all factors that have contributed to this suc-cessful recipe.