MEXICO VS. CHINA: Stacking up the odds
Any discussion of low-cost manufacturing centres must consider the differences in each location, instead of tarring them with the same brush. In this feature, industry leaders contrast the manufacturing climate in Mexico with the industrial merits of China.
Mexico and China often get lumped in together under the column of low-cost manufacturing countries, even though the two industrial centres are – both literally and figuratively – worlds apart.
“This [comparison of Mexico and China] is a bit like comparing apples and oranges,” noted Foreign Affairs and International Trade Canada spokesperson Anne-Marie Parent.
Although much of the recent foreign investment has focused on the BRIC countries – Brazil, Russia, India and China – Mexico’s unique and individual advantages have not gone unnoticed. According to Foreign Affairs and International Trade Canada, the Mexican government has registered over 1,700 subsidiaries of Canadian firms established in the country.
China has specifically become a buzzword for the Canadian plastics industry, and many ambitious companies have moved to make their mark in the Asian contingent. However, manufacturing industry experts note that the Mexico market can offer significant benefit to Canadian companies looking to add to their global footprint.
“China is sort of the flavour of the decade,” noted North American Industries founder and CEO Mitchell Wine. The company offers real estate and shelter services in Mexico.
“If you talk about the pure cost of labour, China is cheaper,” he added. “But if you factor in things like proximity to the U.S. market, awareness of North American quality standards and the ability of management to go to the facility, Mexico wins out.”
DISTANCE DOESN’T MAKE THE HEART GROW FONDER
One of the major benefits to choose Mexico over China is more of a practical consideration. Several industry experts noted that the time difference and traveling distance between China and Canada could make it harder to manage the subsidiary.
The distance can be especially hard on executives at mid-sized companies operating with smaller management teams and tighter purse strings. “There are a lot of costs that people don’t take to consideration when working with China – the cost of travel, cost of phone calls, cost of people,” noted Doreen Michelini of Chicago, Ill.-based China Mexico Solutions LLC.
“There is a lot of executive burnout because you are working 24 hours a day,” she added. Compared to China, industry leaders also note that Mexico is closer to Canada in terms of cultural values. Employees are more familiar with safety procedures and manufacturing protocols in the U.S. and Canada.
A LESSON IN “MARKETING”
In comparison to China and other manufacturing hubs, Mexico offers better access to the domestic and North American markets. This is an important consideration, since Export Development Canada’s most recent forecast estimated that the U.S. still constitutes 90 per cent of Canada’s export market for rubber and plastics.
Although the cost of production is lower in China, Michelini noted that the added cost of duties and shipping back to North America could significantly add to the bottom line.
Items produced in the NAFTA area, by contrast, are duty free and close to the North American markets. And Mexico has a significant number of trade exchange treaties that can be used to the producer’s advantage. “Mexico is probably one of the countries of the world with the most trade exchange treaties,” said Michel Villeneuve, Export Development Canada’s chief representative in Mexico City. “[Manufacturers] can use it as a springboard to export to plenty of other markets where there is no duty.
PROTECTING YOUR RIGHTS
The status of intellectual property rights (IPR) in China has become a prominent issue in recent years, and legal challenges can often be costly and time-consuming.
“The thing for me that made all the difference was the bleak record in terms of respect for intellectual property rights,” said North American Industries’ Wine. Prior to founding North American Industries, Wine set up a manufacturing in Juarez, Mexico for his company Brushstrokes Fine Art Inc. The company utilizes a proprietary production technique, and the muddy status of IPR laws in China was definitely a concern.
Industry experts note that the situation is very different in Mexico. “Mexico has IP laws similar to the U.S., and they are enforced,” said Steve Colantuoni, spokesperson for shelter service provider The Offshore Group. Colantuoni also noted that the country has a more developed relationship with regulatory agencies in the U.S.
“For example, FDA inspectors can easily go to Mexico to review production of things like medical devices with greater ease,” he explained.
