Manufacturing in Mexico or China?
R3D Opinion
October 1, 2024
The manufacturing industry is facing a unique and unprecedented opportunity.
Historically, supply chain decisions were dominated by labor cost and logistics.
China stood out for offering cheap labor and a robust infrastructure, producing about 30% of the world's manufactured goods. However, the landscape has changed dramatically for a number of reasons:
1.U.S.-China Trade War: Since 2018, tariffs imposed as part of the trade war have increased costs for U.S. companies importing from China. This cost increase has led companies to seek regional alternatives, benefiting in particular Mexico, Taiwan and the European Union .
Proximity and Logistics: The cost of transporting a 40-foot container from China to the United States can exceed US$4,000 and takes approximately five weeks. In contrast, a similar container from Mexico costs less than half that and only takes a few days to reach its destination. Mexico's geographic proximity not only reduces costs, but also improves responsiveness to changes in demand, allowing companies to shorten their supply chains and reduce reliance on long routes that are vulnerable to disruption.
Sustainability and the Environment: The environmental impact of long global supply chains is considerable. Relocation (or reshoring) reduces CO2 emissions by reducing long-distance moves. Sustainability has become a priority for many companies, and reducing their carbon footprint by manufacturing closer to the end consumer market is a key objective. Mexico, in this regard, presents an opportunity for companies seeking to comply with stricter environmental standards.
The new supplier selection criteria include factors such as: distance between suppliers and the target market, faster delivery and less reliance on long and interconnected supply chains, as well as intellectual property protection and environmental impact.
The world is changing and production networks are no exception; they continue to evolve.
Themain competitive advantages that China used to offer are losing their validity and have left a space for Mexico to grow.
In 2024 Mexico will be positioned as the main supplier and export destination for the United States thanks to the T-MEC. A milestone that will change the rules of the game for trade in North America and boosts the regional integration of a region with a combined GDP of $26.25 trillion dollars.
This remarkable growth positioned Mexico as the top U.S. supplier and export destination for the first time since 2002, with merchandise trade volumes 54% higher than U.S.-China trade during the first half of 2024.
The decline in imports from China has been replaced by an increase in imports from other countries. The trade detour effects have brought large benefits to Mexico, Taiwan and the European Union, effects that are increasing over time.
Sustainability.
Today's supply chains could reduce their CO2 emissions by 40% if the following points are achieved
Moving to zero emissions is a gradual process that requires a sustained transition.
Relocation has a more immediate impact by shortening the current long supply chains, immediately reducing pollution from the use of fossil fuels, as well as having a positive social effect and stimulating local economic activity.
Relocation is a key factor in driving sustainability.
Advantages of relocating
Mexico and Latin America enjoy a favorable situation in this global scenario.
For companies, relocating production of the products they sell could reduce operating costs by an average of 23% by transferring their manufacturing from China to Mexico.
While a 40-foot container from China to the United States costs more than US$4,000 and takes about five weeks to ship, in Mexico the cost is less than half and takes only a few days.
Proximity to consumer markets, automation, access to resources, workforce skills, infrastructure quality and the increasing importance of speed to market in some industries are driving relocation in goods production value chains.
As a result, it makes strategic sense for companies to place production closer to key consumer markets around the world.
Decentralizing manufacturing
Enabling market sharing results in the consolidation of regional organizations that gain the opportunity to create products that create brands, and brands that create industries.
The outlook is promising, however, until now Mexico and Latin America did not have the tools to help connect manufacturing and product development capabilities with local and global brands.
R3D.com.mx came to help digitize the capabilities of makers and creators, we simplify on-demand product development for brands.
R3Design with us a decentralized, sustainable, connected and efficient industry.
Sources:
"Trade and Trade Diversion Effects of U.S. Tariffs on China," a study by the United Nations Conference on Trade and Development (UNCTAD).
https://www.pwc.com/mx/es/servicios-consultoria/eficiencia-cadena-suministro.html
https://www3.weforum.org/docs/WEF_Net_Zero_Challenge_The_Supply_Chain_Opportunity_2021.pdf
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