We’re still the one…
When it comes to global manufacturing, Mexico is quickly emerging as the “new” China. According to corporate consultant AlixPartners, Mexico has leapfrogged China to be ranked as the cheapest country in the world for companies looking to manufacture products for the U.S. market. India is now No. 2, followed by China and then Brazil.
In fact, Mexico’s cost advantages and has become so cheap that even Chinese companies are moving there to capitalize on the trade advantages that come from geographic proximity.
Mexico’s allure as a production site that can serve the U.S. market isn’t limited to China-based suitors. U.S. companies are increasingly realizing that Mexico is a better option than China. Analysts are calling it “nearshoring” or “reverse globalization.” But the reality is this: With wages on the rise in China, ongoing worries about whipsaw energy and commodity prices, and a dollar-yuan relationship that’s destined to get much uglier before it has a chance of improving, manufacturers with an eye on the American market are increasingly realizing that Mexico trumps China in virtually every equation the producers run.
While the trade advantages of working within NAFTA and the much lower transportation costs associated with geographic proximity to the United States consumer market are what interests the readers of Commodities On-line, there are less cost-driven advantages Mexican has over China as well.
Although the Calderón administration has been trying to undo the Revolution’s accomplishments in establishing labor rights, the rules under with labor and management operate are well-established and — for the most part — relatively stable. Putting aside ethical considerations like forced labor, workers who are not coerced are more productive than those that are… and less likely to engage in sabotage or unannounced slowdowns or force the manufacturer to turn to state authorities to enforce minimal production standards (not to mention the staffing problems if your shop stewards are executed).
Secondly, and one often overlooked, is that Mexico is not a “developing country” where the whole concept of manufacturing and shift work and payment by check and processes and procedures are something that has to be learned by the work force. There has been a working class in Mexico forever (there are strong indications that most of Teotihuacan’s residents at its heights were working on assembly lines making obsidian tools for export). Even for rural indigenous immigrants to manufacturing areas there isn’t much need to “develop” the work habits suitable to these kinds of enterprises, since there is already a peer structure to assimilate these workers.
Where foreign investors run into problems is where they either try to “game the system” — making the assumption that Mexico, being poorer than the United States — doesn’t have a manufacturing and employment culture of its own, or that the rules don’t apply to them — or — when they don’t do their own due diligence and try to compete with a successful Mexican enterprise making the same product and would be better off investing in expanding their market.
The latter is self-evident. Every day (or nearly every day) one reads on the expat message boards inquiries from a wannabe Mexpat about setting up a dress shop or a hair salon or ESL school or designing websites for Mexicans… as if there are not already a lot of Mexican businesses doing exactly that. The best these kind of investors can do is offer services to other gringos that aren’t going to compete with existing businesses… of which there are very few, and none of which are going to make you rich. Like selling English-language paperbacks or publishing English-language books for the English-language minority.
On the former, I’ve seen companies run into problems when they either try to cheat (and cheaters never prosper), or — more commonly — assume that hiring a Mexican-American or a Mexican trained in U.S. schools (and usually with a U.S. MBA) to handle the human side of things. Not that some of these guys aren’t bright, but they may not be tuned in to the nuances of how things work. Reading Ned Crouch’s Mexicans and Americans: Cracking the Cultural Code is a good start (as well as Crouch’s webcast from the Library of Congress on this topic). Putting into practice his admonition that one doesn’t say “they don’t understand,” but “I don’t understand” is harder.
Working within the culture — and hiring management from within the culture — is essential. Consider Crouch’s discussion of time. Mexicans will get the job done, and done well and within the parameters of the job, but finding even a Mexican-American who can works within that Mexican concept of time is a challenge. The problem for the investor is accepting that their way (and their money) is in the hands of people who may not think the same way. That requires trust.