The Resurgence of Mexico: Why Many Businesses Are Camping Out Closer to Home
by Scott Sneckenberger & Timothy Martinez
Universal Advisor, 2007 Issue No. 2

When it comes to China, there’s a saying that “Anything is possible; everything is difficult.” Many of the U.S. companies that headed east over the past few years have come to discover just how true that statement is. Not that there’s not opportunity in China; there is. However, it’s becoming apparent that there are equally appealing — and, in some cases, more appealing — opportunities a lot closer to home: in Mexico.

What’s Driving the Resurgence of Mexico?

When China first became the low-cost region of choice, there was a mass exodus from Mexico; companies in search of the promises of cheaper labor and production costs flocked overseas, in many cases only to realize that their landed costs weren’t as attractive as they’d initially believed. For example, it typically takes 4–6 weeks to ship products from China to the United States; in the automotive industry, there can be multiple product changes within that period of time. Worst case scenario: an organization spent money to set up its facility, bought the raw materials, paid import duties and shipping costs, and now the item is either obsolete or must be reworked to meet new specifications. In Mexico, on the other hand, shipping to the United States often only takes 3–5 days. This reduced lead time also allows companies to reduce the amount of safety stock they must keep on hand in case problems arise in the manufacturing process, which can also reduce costs.

What Other Factors Make Mexico Attractive?

There are a variety of other factors that can make Mexico more attractive than the low-cost regions in Asia. To begin, the Mexican culture and language are much closer to that of the United States than China or India. In addition, communications are easier; when it’s 9 a.m. in Michigan and Ohio, it’s 9 p.m. in Shanghai. You don’t have that issue with Mexico. Finally, Mexico is a very stable country — stable economy, stable currency — whereas China can be much more volatile. Although the Chinese people have a capitalistic mentality, it’s still very much a communist country.

Is Mexico the Right Answer for You?

This doesn’t mean that Mexico is the right answer for everyone; neither is China, India, Vietnam, or any other low-cost region. If your company is considering establishing operations outside of the United States, it’s important to take a pragmatic, strategic approach. Do your homework; conduct a complete cost analysis of the regions you’re considering to determine which region is the best one for you. There are no easy answers, and the right one for one organization may be very wrong for another.