.webp)
Your alternative to Chinese manufacturing could be right on your doorstep: Mexico.
If you rely on Chinese factories to make products for your company and you’re looking for other options, your solution may be a lot closer than you think – literally.
Ever since the Pandemic turned supply chains upside worldwide, and ever since America’s trade war with China began with the Trump administration, U.S. companies have been rethinking the prevailing consensus that China was the only source for manufactured goods that were both good quality and cheap.
In fact, while a significant 10% of U.S. companies cut their investments in China in 2021, that figure doubled the following year, and the trend continues.
Factoid
“Nearly twice as many U.S. companies cut their investment in China this year versus last year, found in its latest survey, released Friday. For 2022, 19% of respondents said they were cutting investment in China, up from 10% in 2021.”
The American Chamber of Commerce in Shanghai reports
The Pandemic exposed vulnerabilities in supply chains all over.
It was a worst case scenario that came true.
With so many links in various supply chains much more fragile than people assumed (and feared), it demonstrated how easily this house of cards could collapse. Exasperating delays, stubborn bottlenecks, sudden shortages, political instability, misinformation, distrust and much more all contributed. This was perhaps especially the case in China, with its multitudes of tangled relationships, laws and regulations.
As a rule, when people feel threatened, there’s a tendency to pull inward – to “pull in your horns” – in order to feel safe and secure. On a very broad scale, that’s essentially what happened. Global supply chains started getting more regional.
U.S. companies began seeing countries like Mexico in a new light.
Sometimes it takes a profound shakeup before people see what’s right in front of them. It turns out that the benefits of dealing with Mexico come one after another:
Costs, including labor, are dramatically lower.
Their pool of engineering talent is deep and wide.
Shipments can be made more cheaply by truck than by air or sea.
Logistics in general are much easier to manage thanks to its close proximity.
It’s much easier to physically drop in on suppliers.
All the advantages of free trade apply.
Relations with the U.S. are enthusiastically positive.
Mexico is also an excellent location in which to assemble components made in China. This enables your company to use their higher quality components, while avoiding tariffs that would come into play if you were dealing with China directly.
Conduct a cost-benefit analysis.
Consumer Goods
Food & Beverage
Electronics
Automotive & Aerospace
Medical
Textiles
The Chinese themselves see the writing on the wall.
In response to the exodus of U.S. companies from China, Chinese businesses have also been scouting Mexico. And they’re beginning to invest in earnest.
If their new factories can make goods that are deemed “Made in Mexico,” they can export them to the U.S. and Canada tariff-free. Plus, they’ll enjoy the local advantages of much shorter shipping times and lower costs.
It’s not all without downsides.
Mexico has its episodes of instability due to violence, and the number of products that can have the same cost advantages as Asian countries is limited. But then, no country is without major negatives.
The bottom line: give Mexico a shot.
How can you tell if Mexico is the “new China” as far as your company is concerned? Well, if you ship goods to the U.S., you’re already halfway there. If you operate in one of the industries referenced above (Food & Beverage to Electronics), you’re getting warmer still. Or if your quantities are large enough, that’s another indicator. Or if you’d like a nearby location just to assemble parts made in China, Mexico tops the list.
