Friday, September 10, 2010

Bloomberg: As Wage Differentials Narrow Can Mexico Regain Some Outsourcing versus China?

While it seems unlikely mass scale defections from China will happen anytime soon as an entire ecosystem of industrial activity has been built there, one would think for heavy objects which are expensive to transport across shipping lanes, Mexico might slowly wrest back some of the business lost to China over the past 15 years.   [May 25, 2010: Polaris Industries to Move American Jobs to Mexico - Great for Profits and Shareholders; Not so Much for American Workers]  Remember, before China was the offshore capital of America... it was first Mexico.  Before their "outrageous" wages made it more profitable to go to Asia.  But now it appears Chinese wages have risen 260% (albeit from rock bottom levels) since 2002, whereas in all that time Mexican wages have only risen 7.5%.

Based on the types of companies cited in this Bloomberg story it seems some of the bigger durable type of manufacturing is beginning to make sense in Mexico again.  This does reinforce my point for anyone thinking someday falling wages / the dollar / some form of magic, will cause a flux of manufacturing jobs return to America ... it's a firm no.  We will never beat Mexico's wages... unless things really go to pot domestically I suppose.  And shipping time to the West Coast from Chicago is no different than shipping from central Mexico.

  • When Cessna Aircraft Co. sought a low-wage country in 2006 where it could manufacture airplane parts, its first instinct was to go to China.  After struggling to find a way to ship supplies to the Asian country in less than a month, the Wichita, Kansas-based producer of light airplanes discovered a better solution just across the U.S. border: Mexico.
  • “Shipping to and from Mexico is easier and faster because it’s over land rather than by sea,” Cessna Chief Executive OfficerJack Pelton says. “It provides a way for Cessna to become more competitive as we deal with the challenge of the current economic situation.”
  • Cessna has plenty of company. Last year when Benton Harbor, Michigan-based Whirlpool Corp. decided to cut production because of flagging consumer demand, it closed a plant in Evansville, Indiana, and shifted more work to Monterrey, Mexico. Polaris Industries Inc. said in May it picked Monterrey to build all-terrain vehicles and ship them to the southern U.S. The Medina, Minnesota-based company is closing a factory in Osceola, Wisconsin.  (let's stress what type of products there are... not the light weight things dominate Walmart shelves... we're talking four wheelers, fridges, and aircraft parts)
  • After years of losing chunks of the U.S. market to China, Mexico has begun taking some of it back. Mexico’s share of the products the U.S. imported for the first five months of the year rose more than a percentage point to 12.3 percent, while China’s position dropped to 17.3 percent from 18.6 percent.
  • Average Chinese manufacturing wages at just under $2 an hour are only 14 percent less than Mexican salaries as of this year, according to estimates by Mexico’s Finance Ministry. Salaries south of the border were more than three times higher in 2002.   (race to the bottom)
  • From 2002 to 2008, the last full year of official wage data, Chinese manufacturing salaries in dollars jumped 2.6 times, while Mexican wages rose only 7.5 percent in dollars from 2002 to 2009.
  • Foreign companies are brushing aside concerns about drug- related violence. Since 2006, 28,000 people have been killed as narcotics cartels fight one another and police to grab a larger share of $39 billion in drug sales annually to the U.S. Companies are enticed by a peso that has weakened 21 percent against the dollar since 2008.  
  • Santa Clara, California-based Intel Corp. says the increase in gang violence hasn’t kept it from investing in Mexico.  The company plans to spend 2.3 billion pesos ($180 million) to expand a research center in Guadalajara, Mexico, Overson says.  The center, which began with 33 employees, has grown to 440 and will almost double to 750 after the new facility is built.
  • The auto industry is an example of how Mexico has gained favor as a manufacturing base for North America, Zuniga says. Chrysler Group LLC, Ford Motor Co. and General Motors Co. have increased production in Mexico as they curtailed output and shuttered factories in the U.S.
  • U.S. manufacturers like the proximity of Mexico and the fact that the country has few labor strikes, shares time zones with the U.S. and has cultural similarities with the rest of North America, with most Mexican executives and middle managers able to speak English.
  • The number of Mexicans 15 years and older that have completed at least the ninth grade jumped to 54 percent in 2005 from 36 percent in 1990 and 9 percent in 1970, according to the Mexican government.

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