Prime Advantage Blog

Mexico Today - Sourcing and Supply Chain Development Opportunities

Guest Contributor on May 14, 2015 7:14:00 AM

As part of Prime Advantage, Endorsed Suppliers have been invited to share their insights on the present and future of supply chain management success. In this post, John Golec from Grupo Prodensa looks at the benefits of sourcing in Mexico.

Grupo

Many companies continue to weigh the financial benefits of outsourcing production. One consideration in the matrix of possibilities includes location country. Recent years have seen companies moving production around the world. As the dollar strengthens, people are bringing some production back to North America. Mexico is benefiting from much of this near-shoring.

Nearly 25 years ago, Mexico started on its way toward greater economic openness, with an emphasis on free trade and the establishment of a pro-investment legal framework. A macroeconomic framework has been put in place that is consistent, solid and stable. Mexico has an attractive business environment with one of the most expansive trade agreement networks in the world, a growing domestic market, and a highly competitive cost profile. Source – American Chamber Mexico.

Mexico is viewed as a young country full of opportunities. The domestic market has strengthened as a result of Mexico's investment in human capital. The living conditions in Mexico have improved substantially in the last 20 years with a direct impact on productivity. The United Nations Programme’s (UNDP) Human Development for Mexico – which measures levels of education, health, and per capita income – surpasses countries such as Russia, Brazil, Columbia, Turkey, China, India and South Africa. Schooling averages doubled from 30 years ago and the number of students in higher education tripled. This translates into better quality of life for the country’s human capital and a greater availability of skilled working-age people. (INEG and ANUIES)

Over the past 10 years, the global economy has been undergoing major changes in manufacturing costs. Countries like China and India commanded a distinct cost advantage over the U.S.A. and Mexico. This paradigm has changed dramatically in recent years. Total manufacturing costs in China in 2003 were 7% lower than Mexico. However, in 2013, total manufacturing costs tipped in favor of Mexico by 4% and continue to outpace China. Labor costs have shifted higher in China while the cost of labor in Mexico has remained flat thanks to productivity and a stable and predictable peso. Source - Boston Consulting Group and Alix Partners.

Aside from cost, Mexico enjoys a near-shoring advantage logistically and shares common time zones. Doing business with companies in Mexico has become significantly easier over the past 10 years as one can typically conduct business in English, and border crossing expediency has improved to the point of being a non-issue. Mexico manufacturers are focused on high quality standards as they need to be certified to service the automotive, aerospace and medical markets in Mexico. It is not unusual for Mexican subsidiary companies to outperform their sister companies in other parts of the world in productivity and quality.

To summarize, companies initiating business relationships in Mexico can look forward to sustainable financial benefits for the foreseeable future. These financial benefits include lower cost, lower inventories and faster supplier response times that lead to better customer satisfaction. 

Topics: Supply Chain, Strategic Sourcing

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