MEXICO CITY -- Not long ago, Mexican factories couldn’t compete with the “China price,” the ridiculously low cost of production in the Asian nation.
But some time this year, with rock-bottom wages now soaring in China, the average cost of factory labor in the two nations will be roughly the same. This is a boon to Mexico, and its industrial parks are swelling.
The trend has caught the attention of chief executives such as Rob Moser, the president of Casabella Holdings, who recently started totting up the pros and cons of where to make the housewares that his New York firm designs and sells.
China had been cheap – really cheap – when he first started buying there in 2003. But labor costs have climbed at a double-digit pace, and there were other factors that made China less convenient.
“You’ve got to get a visa to China, and that takes time. It’s a 16-hour flight, hours to the factory. It’s days at the very least to tackle some of these issues,” he said, referring to production problems that invariably arise.
“You literally can be in a facility in Mexico the same day and be fixing things. That is a huge benefit,” Moser said.
So like a number of U.S. and Canadian businesses – large and small – Casabella decided this year to bring some of its business back to North America, specifically to Mexico, the United States’ third-largest trade partner, after China and Canada.
Mexico’s charms look more attractive than ever to global supply-chain managers. Eclipsed over the past decade by the white-hot industrial juggernaut in China, and marred by an image of rampant criminality, Mexico is again seducing global business, drawing billions of dollars in investment.
The Boston Consulting Group, a major business strategy consultancy, says average factory wages in China this year have hit about $4.50 an hour – including benefits and other costs – and are likely to climb to $6 an hour by 2015. Mexico’s National Statistics Institute says average manufacturing wages stood at $3.50 an hour in June, the most recent month tallied, but that figure doesn’t include benefits.
“We’re at that point where Mexico is now getting wages that are lower than in China,” said Harold L. Sirkin, a senior partner at the Chicago office of the Boston Consulting Group. “The fundamentals are pretty favorable to Mexico.”
“This is the year that it is happening,” he added.
Yet to be seen, though, is whether Mexico can follow China’s path and leverage its low-wage status into sustainable fast growth. To do so, it needs policies to foster small and medium businesses and move them into higher-end production, and to draw workers into the formal economy and push them up the economic ladder. Some analysts have doubts.
“I would be quite cautious about talking of any Mexican euphoria over the return of these industries,” said Enrique Dussel Peters, coordinator of the China-Mexico Study Center at the National Autonomous University of Mexico.
Unlike in China, where the Communist Party identifies “pillar industries” and orders banks to shovel loans their way, Dussel Peters said, Mexicans who are eager to start or grow businesses even in strategic sectors can’t get cash easily.