Mexico now cheaper than China for Manufacturing - Study

[GoFlyKiteNow]

http://www.businessweek.com/magazine/content/09_24/b4135054963557.htm?campaign_id=rss_daily

So Much for the Cheap 'China Price'
Business Week
June 4, 2009, 5:00PM EST

A new study says rising mainland wages and higher shipping costs, among other things, make Mexico a better choice for manufacturing .

As purchasing manager for the North American arm of Japanese auto supplier Takata, Fred Heegan used to feel pressure to shift manufacturing to China. But when a customer pointed to a lower-priced Chinese part, Heegan would talk about the added challenges of quality, logistics, and engineering changes. "There are significant hidden costs to having supply lines that extend to China," says Heegan, whose company manufactures auto parts in the U.S. and Mexico.

Heegan now looks like a visionary.

A growing number of companies are moving beyond the usual considerations of labor and raw material costs in deciding where to produce goods to calculate the "total cost of ownership."

That means tallying expenses associated with things such as storage and delays. By this light, the so-called China price, which always seemed to be at least 40% below U.S. costs on everything from bedroom furniture to telecom gear, isn't so low.

In fact, China's once-formidable edge in manufacturing has all but disappeared in some industries, according to a new study by Southfield (Mich.) firm AlixPartners, which researches and consults on outsourcing.

AlixPartners studied five categories of machined products, ranging from large engine parts requiring significant labor to small plastic components that need little. The cost shift has been dramatic. In 2005, AlixPartners found that by the time the items had arrived at a U.S. port, Chinese-made parts were 22% cheaper on average than those produced in the U.S. By the end of 2008, however, the average price gap had dropped to 5.5%, which often isn't large enough to merit the hassle of manufacturing halfway around the world.

Even more surprising is the cost comparison with Mexico. While the total cost of making goods in China was about 5% cheaper than in Mexico three years ago, manufacturing in China now is about 20% more expensive. Compared with the U.S., the savings in Mexico have widened to 25%, from 16%. "A couple of years ago outsourcing to China was a no-brainer," says Stephen T. Maurer, AlixPartners' managing director. No longer, he says.

The biggest factors behind the sharp shift are currency fluctuations and labor costs. The yuan has appreciated by around 11% against the dollar since late 2005, and wages have risen 7% to 8% a year. To rein in polluting industries, furthermore, Beijing has stripped away tax breaks for exporters of some heavy industrial products.

 

[longbow]

This is true. However, Mexico has many special trade treaties with the US and much of this "cheaper" price is due to the special tax treatment.

That is why GM is manufacturing cars and parts in Mexico. So as a low cost producer of good, few can touch the Chinese. But if you throw in tax incentives then Mexico is cheaper.

 

[Ah Guan]

Cost alone is no the factor

One party China is politically more stable for business

Mexico has a long history of union troubles and anti-American left-wing political ideals. A new left-ish President might be elected next and impose funny trade policies of American companies

Besides, who wouldn't want to be in Asia, the world's fastest growing market?

 

[GoFlyKiteNow]

This is true. However, Mexico has many special trade treaties with the US and much of this "cheaper" price is due to the special tax treatment.

That is why GM is manufacturing cars and parts in Mexico. So as a low cost producer of good, few can touch the Chinese. But if you throw in tax incentives then Mexico is cheaper.

What all this points to is that with competition emerging for low cost production bases in Latin America and Eastern Europe, China will find it more difficult to attract further manufacturing investments as well as attain its earlier high growth levels.

In fact this year's growth level of China is maintained by spending its own money internally, with emphasis on internal sourcing. A growth level that produce NIL benefit for its Asean trading partners as well as many other nations.
So how did the financial experts come to the conclusion that China and India
will pull other countries out of the slump, when these two nations are going to spend all that growth money sourcing everything internally.?

Makes no sense at all , except to the so called financial and economic analysts.!!

 

[scoobyhoo]

india is also cheaper than china.

 

[longbow]

Even if Latin America can become a low cost producer (highly unlikely with the weak and highly corrupt G - look at Chavez, Bolivia and its nationalization program) they do not have the supply chain. The supply chain is critical.

The Chinese have, because of rising cost, moved up market and they have the supply chain. From packaging to aluminum casting to good roads and ports. Just think what it takes to make the laptop that you are using, pretty much all the parts are made in China. Most of the LCD screens, disk drives, semiconductor chips, plastic casing are now made in China.

Now they are on the verge of building a first class automotive supply chain. Given the fast growing Chinese automobile market, BMW, Toyota, GM, are all selling their latest models in China. With volume, it makes sense to assemble locally and with that we see a building up of supply chain. I think within 3 years, most of the parts will be made in China. So you will have a Toyota or BMW with high percentage of locally made parts. Chinese Gov just have to insist on certain percentage of local content and given the huge market, most manufacturer will do so.

And you also have the huge markets in China, India, Vietnam, Pakistan, Russia. Why make in Latin America and ship all the way to Asia?

I think if there were to be an effective low cost competitor, it would be Vietnam. It can supply the Chinese manuf that have moved upmarket as well as supply to the huge Chinese market.

 

[Char_Azn]

india is also cheaper than china.

Not when U look at the entire picture. Doing Business in India is like trying to get out of a maze. The cost is low but there are too many other factors involve.

1)Most important of which is the fact that virtually all vendors there are con men. It is next to impossible to find a vendor that doesnt try to chop your head off, even my local colleagues get conned all the time

2)Nothing delivered. When U buy something or get services in India. Expect them to promise U everything and deliver nothing. Basically when U ask for 10 items, they will promise U 12 and deliver only 1. Constant monitoring of the vendors(and by that I mean daily) is needed to ensure they actually deliver whatever is stated on the contracts

3)Time and effort needed to manage them. If one was to tell and Indian to do A and trust them to be professional and complete the job, you probably are not suited to work with India. Not a day goes by where someone from my office doesnt call up India to screw them upside down coz no work was done. And cost of managing them increase by a lot due to the frequent travels needed to get to India just to make sure they do their job. For example, when we work with Thais, PRCs, MY, etc, we tell them we need A,B and C to be done, we can go back to SG. Wait a few months, fly back to that place and its usually done. When building/upgrading plants in India, our local engineers basically have to stay there else nothing gets done.

U factor all that cost together, I am pretty sure India isnt that cheap anymore

 

[DingDong]

Not when U look at the entire picture. Doing Business in India is like trying to get out of a maze. The cost is low but there are too many other factors involve.

1)Most important of which is the fact that virtually all vendors there are con men. It is next to impossible to find a vendor that doesnt try to chop your head off, even my local colleagues get conned all the time

2)Nothing delivered. When U buy something or get services in India. Expect them to promise U everything and deliver nothing. Basically when U ask for 10 items, they will promise U 12 and deliver only 1. Constant monitoring of the vendors(and by that I mean daily) is needed to ensure they actually deliver whatever is stated on the contracts

3)Time and effort needed to manage them. If one was to tell and Indian to do A and trust them to be professional and complete the job, you probably are not suited to work with India. Not a day goes by where someone from my office doesnt call up India to screw them upside down coz no work was done. And cost of managing them increase by a lot due to the frequent travels needed to get to India just to make sure they do their job. For example, when we work with Thais, PRCs, MY, etc, we tell them we need A,B and C to be done, we can go back to SG. Wait a few months, fly back to that place and its usually done. When building/upgrading plants in India, our local engineers basically have to stay there else nothing gets done.

U factor all that cost together, I am pretty sure India isnt that cheap anymore

Not a single Singaporean investment in India loses money (e.g Infosys, ICICI bank. Ascendas business and IT parks, Matrix Labs, Bharti telecom etc) In every investment, S'porean companies make money or at least break even.

Almost every Singaporean investment in China loses money. Heck the Chinese ripped off Singapore by building a rival business park just beside the one they partnered to build up. Chinese are the best in the world to con. Look at their women who open legs the moment they see money. How do you trust anyone who comes out of such a woman.

Your assertion is typical lie that Sinkee losers in this forum and in that other gutter called 3in1 kopitiam spread around.

 

[GoFlyKiteNow]

Even if Latin America can become a low cost producer (highly unlikely with the weak and highly corrupt G - look at Chavez, Bolivia and its nationalization program) they do not have the supply chain. The supply chain is critical.

The Chinese have, because of rising cost, moved up market and they have the supply chain. From packaging to aluminum casting to good roads and ports. Just think what it takes to make the laptop that you are using, pretty much all the parts are made in China. Most of the LCD screens, disk drives, semiconductor chips, plastic casing are now made in China.

Now they are on the verge of building a first class automotive supply chain. Given the fast growing Chinese automobile market, BMW, Toyota, GM, are all selling their latest models in China. With volume, it makes sense to assemble locally and with that we see a building up of supply chain. I think within 3 years, most of the parts will be made in China. So you will have a Toyota or BMW with high percentage of locally made parts. Chinese Gov just have to insist on certain percentage of local content and given the huge market, most manufacturer will do so.

And you also have the huge markets in China, India, Vietnam, Pakistan, Russia. Why make in Latin America and ship all the way to Asia?

I think if there were to be an effective low cost competitor, it would be Vietnam. It can supply the Chinese manuf that have moved upmarket as well as supply to the huge Chinese market.

Mexico, Brazil, Argentina etc are quite advanced nations..much better placed than China in every aspect. You underestimate them and their capabilities.
Besides they have strong business links using the Hispanic Spanish speaking community in USA and Europe. They speak english too...All this puts China at a disadvantage, once the cost factor is tilted in favor of the Latino countries

The rise of these nations will be at the expense of China's future growth..thats how I read from this news item.

 

[Char_Azn]

Your assertion is typical lie that Sinkee losers in this forum and in that other gutter called 3in1 kopitiam spread around.

My assertion isnt something I pull out of my ass. My assertion of India comes from the fact that the company actually have to work with them for the past 3 years(I was personally involved with working with them for the past 2 years) coz the company is building a couple of new plants(5 plants and 3 offices in different locations to be exact) there. I did not say we are going to lose money working with India. I said India isnt as cheap as most pple think because of all these. And btw my company's highest revenue generating country location in Asia is Japan followed by Malaysia then China. India is the only location currently bleeding itself dry at the moment due to all the cost of managing the place incurred but is expected to turn around once the rest of the plants and office starts going operational and hopefully self managed.

 

[GoFlyKiteNow]

I heard that NTUC lost all its - entire fleet of Taxis (2000 vehicles)
when they opened a venture there in China. Can anyone confirm ?

If you look at it, foreign companies have lost much more in China
than elsewhere. Let alone the billions lost from copyright violations,
pirate software , music, DVDs and so forth.

Then the reputation itself..the melamine tainted milk to leaded toys
exploding batteries and so on.

Lets put things in the right perspective when making comparisons.

India is not a manufacturing base.or Worlds factory as China was
once considered to be.

 

[Char_Azn]

I didnt even compare India with China. I only pointed out that India isnt as cheap to work with as many would think due to the amount of management cost incurred and the work needed to actually run that place.

 

[SamuelStalin]

Nothing really new here. Mexico, the China of the West, has always been the country of choice for US companies. They are just nearby, and the Spanish-speaking cheap laborers can do almost the same job as their Chinese counterparts.

Furthermore many Americans are Hispanics, and they generally get to learn a bit of Spanish in their public high school semesters, so the communication barrier is not so severe or evident unlike faraway China.

However, it seems that a product that is Made in China, is still superior to one that is Made in Mexico in terms of quality.

http://www.businessweek.com/magazine/content/09_24/b4135054963557.htm?campaign_id=rss_daily

So Much for the Cheap 'China Price'
Business Week
June 4, 2009, 5:00PM EST

A new study says rising mainland wages and higher shipping costs, among other things, make Mexico a better choice for manufacturing .

As purchasing manager for the North American arm of Japanese auto supplier Takata, Fred Heegan used to feel pressure to shift manufacturing to China. But when a customer pointed to a lower-priced Chinese part, Heegan would talk about the added challenges of quality, logistics, and engineering changes. "There are significant hidden costs to having supply lines that extend to China," says Heegan, whose company manufactures auto parts in the U.S. and Mexico.

Heegan now looks like a visionary.

A growing number of companies are moving beyond the usual considerations of labor and raw material costs in deciding where to produce goods to calculate the "total cost of ownership."

That means tallying expenses associated with things such as storage and delays. By this light, the so-called China price, which always seemed to be at least 40% below U.S. costs on everything from bedroom furniture to telecom gear, isn't so low.

In fact, China's once-formidable edge in manufacturing has all but disappeared in some industries, according to a new study by Southfield (Mich.) firm AlixPartners, which researches and consults on outsourcing.

AlixPartners studied five categories of machined products, ranging from large engine parts requiring significant labor to small plastic components that need little. The cost shift has been dramatic. In 2005, AlixPartners found that by the time the items had arrived at a U.S. port, Chinese-made parts were 22% cheaper on average than those produced in the U.S. By the end of 2008, however, the average price gap had dropped to 5.5%, which often isn't large enough to merit the hassle of manufacturing halfway around the world.

Even more surprising is the cost comparison with Mexico. While the total cost of making goods in China was about 5% cheaper than in Mexico three years ago, manufacturing in China now is about 20% more expensive. Compared with the U.S., the savings in Mexico have widened to 25%, from 16%. "A couple of years ago outsourcing to China was a no-brainer," says Stephen T. Maurer, AlixPartners' managing director. No longer, he says.

The biggest factors behind the sharp shift are currency fluctuations and labor costs. The yuan has appreciated by around 11% against the dollar since late 2005, and wages have risen 7% to 8% a year. To rein in polluting industries, furthermore, Beijing has stripped away tax breaks for exporters of some heavy industrial products.

 

[GoFlyKiteNow]

I didnt even compare India with China. I only pointed out that India isnt as cheap to work with as many would think due to the amount of management cost incurred and the work needed to actually run that place.

Yes..India is not low cost as one would think. Like China it has moved up the value chain and with it the cost of doing business and manufacturing.

As I said earlier, the main point I conclude from the news article is that the last
decade of high growth in China will be a thing of the past, becoz other
nations like Latino countries become competitive and offer themselves as alternative manufacturing destinations to MNCs.

 

[longbow]

Total Pop in Latin America is only 550M. Of that 550M you have lots of small banana corrupt G. Argentina just had a financial meltdown. They are hardly a united entity. The rest consist of tiny nations. Brazil (10K), Argentina (14.4K), Chile (14.5K), Mexico (14.5), Costa Rica (10K), Uruguay (13K) all have per capita GDP of above US$10K a year!! Columbia and Peru is 8.5K per capita GDP.

China is $6K and India is $2.7K.

So how can Latin American countries be cheap? The above listed countries are pretty much the main components of Latin America and their per capita GDP is almost double that of China? I think Latin America is a good market for Chinese made products AND China is an important buyer of Latin American resources (corn, meats, copper, that kind of things). India is still not competitive as a manufacturer because of its poor infrastructure.

Mexico can be somewhat competitive because of special tax treatment for exports to the US. But that is artificial and does not make their products competitive globally.

To illustrate Chinese manufacturing capability - you can order a Thinkpad or Dell on line today, Spec it the way you want. The order will be sent to China, they will put together your computer and get it to you within a week and do so in a cost effective way. Time is money here so there cannot be any delays. Just think of the supply chain needed to perform such a task. Much of electronics today is very time sensitive.

Speaking English is important if you have to write software.

I doubt if speaking English is that important in manufacturing (Japan, Korea and Taiwan are manuf powerhouses). You just need basic command to determine pricing, quality and efficient delivery is more important.

Anyway, it just takes 6 to 10 years to become a proficient English speaker. I am pretty sure that most parents in China are sending their only grandson/son to English classes to get the upper hand in today's world.

With a command of Chinese you are communicate to anyone in China (1.4B) since everyone in China read the same characters. (Literacy in China is at 90%)

With a command of English you pretty much communicate with the business world.

http://www.time.com/time/asia/covers/501060626/story4.html

 

[longbow]

Then why are MNCs are over China.

The potential is great. GM sold their EU operations but kept their Chinese operations, why? Because GM sells more cars in China than EU.

If you ask yourself why it is tough to manufacture in India despite the cheap cost, the simple answer is infrastructure. Just catch a flight out of Mumbai Airport vs Shanghai. Have you seen the traffic and slums near the airport in Mumbai. This is a real life situation.

If you are selling steel pipes India is ok because it is low value added and commodity like in nature so not as time sensitive. But if you are selling clothing or toys or electronics and you miss the Christmas or clothing season, your goods are worth little.

 

[longbow]

No idea about NTUC and their taxi venture.

But given Chinese law enforcement capability it would be hard to steal a whole fleet of taxis. Probably NTUC ran afoul of some local rules and local officials probably confiscated the taxis unless they paid some penalty. Remember that taxis are a highly regulated business.

Even over in the US there is a whole bunch of laws regarding picking up of passengers by taxis. Taxis can only drop off passengers at the airport and need a special permit to pick up passengers from the airport. Taxis can only pickup passengers from the cities that they are registered to operate in.

So it is easy for NTUC to have run afoul of such laws.

 

[GoFlyKiteNow]

Total Pop in Latin America is only 550M. Of that 550M you have lots of small banana corrupt G. Argentina just had a financial meltdown. They are hardly a united entity. The rest consist of tiny nations. Brazil (10K), Argentina (14.4K), Chile (14.5K), Mexico (14.5), Costa Rica (10K), Uruguay (13K) all have per capita GDP of above US$10K a year!! Columbia and Peru is 8.5K per capita GDP.

China is $6K and India is $2.7K.

So how can Latin American countries be cheap? The above listed countries are pretty much the main components of Latin America and their per capita GDP is almost double that of China? I think Latin America is a good market for Chinese made products AND China is an important buyer of Latin American resources (corn, meats, copper, that kind of things). India is still not competitive as a manufacturer because of its poor infrastructure.

Mexico can be somewhat competitive because of special tax treatment for exports to the US. But that is artificial and does not make their products competitive globally.

To illustrate Chinese manufacturing capability - you can order a Thinkpad or Dell on line today, Spec it the way you want. The order will be sent to China, they will put together your computer and get it to you within a week and do so in a cost effective way. Time is money here so there cannot be any delays. Just think of the supply chain needed to perform such a task. Much of electronics today is very time sensitive.

Speaking English is important if you have to write software.

I doubt if speaking English is that important in manufacturing (Japan, Korea and Taiwan are manuf powerhouses). You just need basic command to determine pricing, quality and efficient delivery is more important.

Anyway, it just takes 6 to 10 years to become a proficient English speaker. I am pretty sure that most parents in China are sending their only grandson/son to English classes to get the upper hand in today's world.

With a command of Chinese you are communicate to anyone in China (1.4B) since everyone in China read the same characters. (Literacy in China is at 90%)

With a command of English you pretty much communicate with the business world.

http://www.time.com/time/asia/covers/501060626/story4.html

Lets stop using this 1.5 billion population figure. Apart from the figure being 1.5 billion , what significance does it have on logistics cost, transportation costs, geographical proximity to the USA, Canada and other nations in Western Europe.?

The cost of manufacture in China is no longer that cheap. And its internal consumption economy by 1.5 billion people has negligible impact on overall world trade and economic growth, as is apparent now.

Japan has a per capita income of more than 10 times that of China.
But that has not prevented it from dominating some of the high value markets in USA and Europe over that of China products. The same can be said about Korean products too, similar to that of Japanese products.

One cannot use low cost toys and cheap textiles as a yardstick to assess the economic competitiveness and advantage a country offers. Even here other nations are emerging to compete..lile Vietnam.

One must remember it was western capital and markets ( example Wall Mart ) that provided China the initial impetus to produce low cost products like toys and domestic goods and sell mass volumes at negligible profits, but at huge costs to its environment.