The Mexican dream: low costs, high quality

Nissan manufacturing plant in AguascalientesNissan’s manufacturing plant in Aguascalientes. (Image: AutoField Guide).

‘Cheap’ often means compromised quality. It also used to mean manufacturing in Southeast Asia.

But there’s a new array of opportunities emerging right in the USA’s backyard, with Mexico as a thriving economy, predicted to enter the top 10 world economies in the next decade and to reach the 8th place by 2050.

Mexico’s annual exports of manufactured goods comprise about the same value as the rest of Latin America put together. Mexican universities produce produces each year more engineers than Germany, resulting in a more specialized workforce. In 1994 the North American Free Trade Agreement (NAFTA) opened Mexico to the world by eliminating most tariffs with the United States and Canada. It now has more free trade deals than any other nation, with 44 countries.

Also, Asian wages are rising. The average manufacturing wage in Mexico per hour rose only from $1.50 in 2000 to $2.10 USD in 2011 while China’s grew from $0.30 to $1.60. Transport costs are far more competitive for companies that manufacture in Mexico, and shipping times are considerably lower: a container can take three months to travel from China to the US, against two days from Mexico.

AlixPartners said in 2011:

The joint effect of pay, logistics and currency fluctuations had made Mexico the world’s cheapest place to manufacture goods destined for the United States, undercutting China as well as countries such as India and Vietnam.

Nissan has a village-sized factory in Cuernavaca, near Mexico City, where New York Citiy’s thousands of taxis will be manufactured. Mazda and Audi are also building factories. But cars are not the only manufactured goods in Mexico; medical and electronic industries are also posted in Tijuana, just across the border from San Diego, California.

Nowadays it is more attractive and cost-effective to manufacture close to markets. Mexico has realized the dream of low costs and high quality.


Sources: The Economist | Business 360