China is still the manufacturer for the world, accounting for 28.7% of global manufacturing output in 2019. But after a pandemic, a trade war and rising wages in China, many manufacturers are looking for other options. An increasingly strong option is Mexico.
First, let’s take a look at supply chain problems.
“Goods from China used to take 21 days to arrive at the port of LA or Long Beach and reach our warehouses. Today, it takes 159 days,” said Isaac Larian, CEO of MGA Entertainment, which makes Little Tikes toys like Cozy Coupes – those red and yellow plastic cars that kids googling. It has factories around the world, including Hudson. , Ohio.
“It’s the largest US-based toy manufacturer still standing,” Larian said.
Back to the supply chain problem: 159 days to get goods from China to MGA Entertainment’s US warehouses. And that’s not even counting the lockdowns in places like Shanghai.
“We have factories that make our products in the Shanghai area. In Guangzhou, they open and close the area every two weeks. It adds to those delays,” he said.
Larian is concerned about attacks on American ports. The International Longshore and Warehouse Union contract expires on July 1, and he predicts the strike will be part of that. They’ve also had problems finding workers here in the United States.
“We are paying more than the minimum wage for factory workers,” he said. “I think the issue that clearly happened here was a perfect storm – the previous administration stopped immigrant workers from coming to this country, and they were good workers who worked hard, and they are honest, and They like to work hard. Whether it’s factory work or farm work. And not only American workers are willing to do that.”
And the pandemic has created a tight labor market in many industries. Meanwhile, the demand for toys is in full swing.
“We didn’t get the labor, we didn’t get the raw materials on time, and in the end, we decided, ‘Okay, let’s go to Mexico.'”
setting up shop in mexico
MGA Entertainment maintains its relationship with its US factory and Chinese factories, but has recently opened two factories in Juarez, Mexico, and is about to open a third. Many companies are increasing their presence there.
“I think the growth is an understatement,” said ZipFox.com CEO Raine Mahdi. “I think it’s like a tidal wave.” Mahdi’s company connects American businesses with manufacturers in Mexico. What he is seeing is coming again from China.
“We are still in an active trade war. We impose 25% tariffs on everything we import from China,” Mahdi said. Products coming from Mexico do not have those tariffs. Shipping is obviously much easier And there are burning issues in China that pre-date the trade war.
“Intellectual property theft is one of the main issues for businesses that have IP. Counterfeiting is a big issue,” he said.
And then there are labor costs.
“Chinese wages surpassed Mexican ones around 2014 or 2015,” said Noel Maurer, professor of international affairs and trade at George Washington University.
China’s economy is developing rapidly, the standard of living has increased and productivity has also increased. But its wages have grown faster than productivity, Maurer said. So even before the pandemic, there was pressure to move to Mexico – especially northern Mexico, where the real estate market is now showing demand.
“If you’re trying to find real estate or industrial parks or warehousing close to the border, you won’t find anything until 2024, 2025. Everything is sold out,” said Omar Troncoso, a partner at a Mexico City-based consulting firm. ” Kearney.
Troncoso is helping many customers move from Asia to the Americas and Mexico – and to supply not only to the Americas, but to companies in Asia as well. He’s seeing manufacturers who make things for other manufacturers also start moving to Mexico, and it’s creating a critical mass.
“So once you have that scale, I think stability is there for a long time,” he said.
Maurer said shifting supply chains are important looking at Mexico and Canada, but less prominent looking at overall US consumption.
“I don’t want to exaggerate it, but yes. It depends on what your denominator is. If your denominator is ‘everything sold in the United States,’ the supply chain has changed a bit. But if Your every ‘how much stuff is made in Mexico or Canada versus East Asia’, so that’s a big change.”
But with Mexico’s rise as a manufacturing star, it could collide with another global trend: automation.
“Robots installed in the US actually have a strong negative impact on local employment in Mexico,” said Marius Faber, a research fellow at the University of Basel.
Companies that are turning to Mexico to save money and solve their labor and supply chain problems may, in some cases, also turn to robots to solve some of the same problems. Whether this disrupts or changes the course of reshoring or nearshoring for Mexico “depends on how automation technologies develop going forward.”
The trend also depends on politics — both in the US and Mexico, Maurer said.
We are in a moment of tremendous change in how and where we make what we make. And how it all shakes out will determine the fate of industries and economies for years to come.
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