ASiAn invASion wElcomEd - ProMéxico

8 Negocios
When Producing
Costs Less
Mexico is becoming one of the main destinations for international companies
looking to relocate their production and expand globally. recent studies by
firms such as bcg and alixpartners have concluded that the country has the
lowest and most profitable production costs of any country in the world.
There is something in Mexico that
is calling the attention of investors from
around the world. In the last five years,
the country has become one of the main
destinations for production-related investment,
particularly from transnational
companies that see in it a key piece of
their international expansion strategy.
The reasons are many. They include:
infrastructure and logistics capacity in all
sectors; a large labor market that is mostly
young and highly qualified; a favorable
business environment due to a stable
economy and political system. But the list
continues: the country’s geographic location;
its large network of treaties and economic
agreements that on one hand favor
free trade with the world’s main markets
and on the other provide legal certainty
to investment.
In 2008, a report by Boston Consulting
Group (BCG, www.bcg.com) predicted
such things as Mexico’s geographic location,
logistics capacity and competitive
labor market would make the country a
strategic option for companies with international
expansion plans, particularly
those interested in entering the North
American market.
In the report, titled “Mexico’s Evolving
Sweet Spot in the Globalization Landscape,”
BCG said Mexico is a unique and
advantageous point for companies whose
production processes have one of the fol-
lowing characteristics: significantly high
logistics costs; strict responsibility requirements;
high administrative involvement;
and specialized work force as a
fundamental component of its process.
Change in Manufacturing
Cost Ranking
2005 Cost Ranking
-China-
-India-
-Mexico-
-Brazil-
-United States-
End of 2008 Ranking
-Mexico-
-India-
-China-
-United States-
-Brazil-
Source: AlixPartners 2009
Manufacturing-Outsourcing Cost Index
The report estimates that if, for example,
a company dedicated to the production
of refrigerators (products with
high logistics costs) established itself in an
Asian country with low costs and tried to
sell its product in the US market for 500
usd each, it would have to include 100 usd
in shipping costs in the list price. This
would be 20% of the total value of each
unit. Sending them from Mexico would
cost less than half that amount.
“To illustrate the magnitude of differences
in shipping costs, we will compare
freight costs to transport a container to
Pittsburgh, Pennsylvania. From Mexico
City it’s 2,679 usd; from Sao Paulo, Brazil,
it’s 4,637 usd; and from Shanghai, China,
it’s 5,437 usd (These figures represent
estimates of total costs of going door to
door, based on transportation over land
and sea, according to MaritimeChain.
com),” the report said.
Another logistical aspect is response
time. The ability to offer “just-in-time”
transportation is a very important factor
for many companies and their suppliers.
The time it takes to send products coming
from the eastern coast of China to the
interior of the United States is on average
from three to four weeks through the US
West Coast and four to six weeks through
the East Coast. In contrast, the time for
products coming from Mexico is less than
a week. This is thanks to the country
sharing close to 4,000 kilometers of border
with the United States.
Another factor that makes Mexico a
strategic point is the labor component.
According to the International Labour
Organization and the Economist Intel-