Top 6 Reasons Manufacturing is Moving to Mexico

Aerospace, Automotive, Inbound Manufacturing Product Flow, Industrial Manufacturing, Safety & Environment, Supply Chain
July 16, 2013

Manufacturing in Mexico

Looking to cut transportation costs, minimize inventory & get products to market faster? Know the benefits and challenges before you take automotive, aerospace or industrial production south of the border.

As the automotive and aerospace industries grow increasingly competitive, some of the top players in both sectors have or are moving production to Mexico, with good reason:

  • Skilled, inexpensive labor force: not only is the labor pool skilled and experienced, it’s much more affordable in Mexico than it is in the United States.
  • Sophisticated technology and infrastructure: includes modern industrial parks, strong utility infrastructure and $226 billion invested in Mexico’s supply chain infrastructure (rail, roadway and port improvements) since 2006.
  • Inexpensive land: the government is practically giving land away in an effort to attract jobs, business and manufacturing.
  • Duty-free imports, tax credits & incentives: maquiladoras operate in free trade zones, enabling companies to import materials and equipment without paying taxes or duties, then re-exporting finished products. The Mexican government also offers a variety of incentives, from capital equipment grants and help with infrastructure to real estate grants, the Aerospace Training Center in Querétaro and tax credits.
  • Proximity to the U.S. and Canada: Mexico is nearby, making for a shorter, less complex supply chain and lower fuel and transportation costs.
  • Environment benefits: near sourcing in Mexico is good for the environment because shorter transportation routes leave a smaller carbon footprint.

Major automotive manufacturers are driving costs south
These factors, coupled with government incentives have drawn a Who’s Who of manufacturers south of the border. Today, most of the major players – Ford, Chrysler, General Motors, Volkswagen, Nissan, and Mazda have or are building plants in Mexico. Honda will open a plant in Celaya in 2014 and Audi in San Jose in 2016. In addition, nearly 200 automotive parts plants are located in Mexico, producing HVAC, chassis frames, motor parts, windshields, seats and batteries. In fact, more parts are made in Mexico today than ever before.

Aerospace in Mexico is taking off

On the aerospace side, U.S. and Canadian companies are bringing subassemblies and components to Mexico to be manufactured or assembled and transported to aircraft manufacturers in Wichita or Seattle. In an effort to attract manufacturing business, the state has opened the Aerospace University of Queretaro – training engineers, technicians, operators and administrators for jobs in aerospace.

Montreal-based Bombardier Aerospace opened a plant at the Querétaro Aerospace Park in central Mexico where it builds wiring harnesses, fuselages and flight controls. Cessna Aircraft and Hawker Beechcraft build subassemblies in Chihuahua. Aernnova, a supplier to Boeing, Airbus, Embraer and other firms, built a plant in Querétaro. Others are constructing multi-million dollar sites in Zacatecas. Given all of this growth, experts predict that the number of aerospace firms in Mexico could reach 1,000 by 2015[1].

Industrial and commercial vehicle manufacturing in Mexico

In addition to automotive and aerospace manufacturing, more industrial manufacturing plants are heading south as well. Companies making the move (including companies that manufacture commercial vehicles) include Kenworth, Isuzu, Volvo, Mercedes Benz/Freightliner, Scania, Cummins, Ina and Volkswagen. In fact, industrial production in Mexico increased 3.3 percent in April 2013 over the same month in 2012[2].

Mexico: a manufacturing hub for planes and automobiles
Not surprisingly, Mexico has become an automotive and aerospace manufacturing hub of sorts. In fact, Mexico’s share of North America’s light vehicle (car and light truck) production rose 19 percent in 2012[3].

Top 10 Challenges Facing Manufacturers in Mexico
So manufacturing automobiles and automotive and aerospace parts in Mexico sounds like a win-win, doesn’t it? For many companies it is. However, before relocating to Mexico, it’s important to be aware of the challenges.

  1. Criminal activity: violence close to the border and into Mexico pose challenges. Teaming up with a CTPAT-certified partner helps you cross the border without incident. Some 1,500 freight hijackings are recorded in Mexico each year.[4]
  2. Documentation: failure to handle all of the paperwork and electronic filings required to cross the border properly can delay shipments by up to 72 hours.
  3. Equipment availability: for every three trailers headed out of Mexico to North America, one truck typically heads south, creating an imbalance that can make capacity an issue when exporting to the U.S. or Canada.
  4. Empty miles: many transportation lines are one-way trips, so you’ll pay a premium for empty miles back to Mexico, which can be expensive.
  5. Theft and smuggling: drugs and contraband, including illegal immigrants often find their way onto trucks headed for the border, either by stopping trailers or while the driver’s at lunch.
  6. Lack of LTL networks: because LTL networks are essentially non-existent in Mexico, it can be costly and challenging finding carriers that can consolidate volumes from multiple suppliers and deliver them efficiently and economically.
  7. Cultural/language barriers: failure to understand cultural/language differences can derail a near-shoring relationship in Mexico.
  8. Infrastructure issues: while much of the infrastructure is advanced, some roads are not in the best condition. It’s important to choose qualified partners/regional carriers that know the terrain.
  9. Startup challenges: while labor rates and government incentives make Mexico an attractive choice it’s hard for companies launching operations to control costs

10. Administrative challenges: managing seven or eight different suppliers and dealing with multiple carriers can result in a great deal of complexity – consider aligning with one partner that can manage it all for you.

Thinking about moving production to Mexico, but not sure how to proceed or need help avoiding the challenges? Have experience overcoming some of the roadblocks? Share your thoughts with us by leaving comments below.

To learn how Pilot Pen was able to expand operations into Mexico, download their full case study now.

 

 

 

Ricardo Alvarez is a Director of Business Development for Ryder Supply Chain Solutions in Mexico. Ricardo brings over 15 years of experience in supply chain, international negotiations and foreign trade compliance. During this time, he has played key roles in helping to develop solutions for customers across a variety of industry segments, as well as locations, including the United States and Mexico. He has contributed to various initiatives to build collaboration and more efficient supply chains for a host of organizations.

Brandon Brissette, Director of Product Development for Ryder Supply Chain Solutions is a logistics professional with 16 years of experience in warehousing, transportation, manufacturing support, and inventory control. Throughout his career, Brandon has played an active role in engineering design, supply chain analysis, operations management, program management and sales for Ryder customers across numerous industry segments. 

 


[1] Source: Jean-Claude bouche, senior aerospace consultant at the Monterrey Institute of Technology, AINOnline.

[2]Source: Instituto Nacional de Estadística y Geografía

[3] Source: data from WardsAuto Info Bank

[4] Source: FreightWatch International

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