One of the key advantages of manufacturing in low- or middle-income developing countries such as Mexico is the reduced overall cost. In broad strokes terms, things look truly pleasant. However, we would be remiss to completely disregard the finer details and considerations at play here.
Are you also planning to manufacture in Mexico? Then go through this article in its entirety to fully understand what it means and what it does not.
The average wage of a factory worker in Mexico
The main reasons why manufacturing in Mexico can save you a fortune are the lower wages and extended work weeks.
Whereas the minimum wage in the United States is $7.25 per hour, the same in Mexico is as low as $3.5 per hour. Couple that with a sufficiently high quality of production values and infrastructure and you have a fairly economical place to manufacture goods.
Mexico also has longer workweeks, generally 48 hours per week, as compared to most of the developed world where workweeks range from 26 hours (such as in Germany) to 34 hours (such as in the US). In fact, Mexico has one of the highest average workweeks (52 weeks a year and 2257 hours per worker).
In terms of both, the hourly labor compensation and the annualized percentage change in the hourly labor compensation, Mexico now outperforms many other “cheap labor” nations known historically for their sheer dominance in the space.
More and more companies are moving away from such hubs, in particular from China.
Logistics and transportation costs in Mexico
Manufacturing in Mexico takes remarkably less time than manufacturing in Asia. In fact, according to credible estimates, it’s 75% faster to manufacture in Mexico vis-à-vis Asia.
Add to that a corporation’s ability to import raw materials cheaper and you have a logistically conducive environment to produce your goods.
It’s been close to a decade since Mexico replaced China as the lowest-cost manufacturing hub for North American businesses and corporations.
The comparative cost of manufacturing in Mexico is among the lowest in the whole world, and one of the most important reasons behind this is the significantly lower logistics and transportation overhead.
Industrial real estate costs in Mexico
Mexico might be considered a low-income country on some parameters but it’s a largely modernized first-world country in terms of industrialization and infrastructure. For example, industrial real estate comes with all basic amenities such as fire safety.
The modern real estate market of Mexico provides virtually inexpensive land to open new facilities and set up factories.
Here are some statistics that will blow your mind:
· Tijuana’s average real estate costs $0.48 -$0.52 US dollars per square foot.
· Mexicali’s average real estate costs $0.34 - $0.42 US dollars per square foot.
· Ciudad Juarez’s average real estate costs $0.40-$0.42 US dollars per square foot.
All in all, the inexpensiveness of property as well as the widespread availability of Class A shell buildings with the general amenities make Mexico’s industrial real estate pretty lucrative.
Regulatory costs of doing business in Mexico
Regulations are the crux of the business climate. Is Mexico a safe haven to do business?
As it turns out, Mexico’s business regulatory costs are quite high as per the world average. These upfront costs include company incorporation costs, permits, and so on. However, the right way to avoid these high costs is to participate in the shelter maquiladora program.
The Mexico shelter program or the maquiladora program is a great way to import duty-free and tariff-free raw materials, equipment, and machinery for the sole purpose of manufacturing goods to export them to their originating country, mainly the US and Canada.
You can leverage this program to reduce labor costs.
Other factors
Many secondary and tertiary factors also influence the costs you will incur when manufacturing in Mexico.
Apart from lower wages, logistical overhead, commercial real estate costs, and regulatory costs, Mexico also provides a better deal when it comes to inventory and carrying costs as well as raw materials and component procurement costs.
The Mexican economy is also pretty stable in terms of inflation. The inflation rate most likely holds between 4% to 5% per year, allowing business owners to better forecast the production costs and payroll.
The fact that business entity types are similar to the United States also helps. You can choose between a Public Limited Company or a Corporation, where you need to have at least 2 board members and an accounting firm. Limited Liability Companies need 2 to 50 partners, and having an accountant is not mandatory. A Sole Trader entity requires only the owner to be listed as the shareholder for liability purposes.
Mexico manufacturing costs: The bottom line
Manufacturing in Mexico has become increasingly popular over the decade. It’s cheap, reliable, and high-quality. Not to mention that production values in Mexico, as well as the speed of delivery, far outpace exporting your manufacturing process to Asian countries.
Mexico’s competitive advantage lies in its push towards free trade, especially with the US and Canada.
It’s very easy to set up your production unit in Mexico, though it can also be tedious in some cases. Make sure you are prepared with all the details and also that you have a law firm representing you.
The Mexico shelter program is one of the best policies to use if you do plan to manufacture in Mexico, and we can help you there. Javid LLC makes manufacturing in Mexico easy. We allow you to outsource all the legal hurdles and hoops to us, helping you to focus on what you do best. If you wish to manufacture in Mexico without all the headaches of worker pay, hiring, and so on, then Javid LLC’s shelter and administration service is the right fit for you.
If you do plan on going about it on your own then know that there are many labor laws pertaining to many categories such as discrimination, maternity leave, profit sharing, harassment, child labor, overtimes, wage negotiations, vacations, union regulations, and so on.
Author: Tristan Burke