Q&A: Near-Shoring: The Growth Of Manufacturing In Mexico
In a tough economy, many manufacturers are seeking ways to reduce costs. While offshoring jobs to locations like India and China has become popular, “near-shoring” to Mexico may be an appealing alternative for food processors. Food Manufacturing spoke with Maria Elena Rigoli, president of Collectron International Management, Inc., about near-shoring and its effect on the U.S. economy.
Q: How does the Maquiladora/Shelter Plan work?
A: The Maquiladora Program was established during the mid-1960s by the Mexican Government in order to create jobs for Mexican nationals, develop the infrastructure of Mexico’s northern border, and bring technology into the country. This program grants foreign manufacturers a special customs status to temporarily import (with preferential duty programs) the machinery, tools, equipment, replacement parts and raw materials necessary to assemble and manufacture products for re-export outside of Mexico.
Companies are benefited by Mexico’s Shelter Plan through assistance with:
- Site selection/construction
- Manufacturing personnel in accordance with company’s profile
- Technical and managerial recruitment
- On-site personnel administration
- Personnel, payroll and accounting services
- Mexican business permits
- Mexican environmental agency compliance
- U.S./Mexican customs documentation services
- Plans for new or expanded facilities
Q: What are the major benefits of moving a company’s operations to Mexico?
A: Various international industries from produce to automotive and electronic to aerospace have come to appreciate the benefits of doing business in Mexico. Some of these benefits are listed below. Companies operating in the United States additionally enjoy the extremely fast shipping lines offered by such a close location. Goods from Canada can be shipped in 3 days; perishable goods grown in Arizona, California or Texas can be packaged, pruned and returned in less than 48 hours.
Overview of benefits:
- Reduced labor costs
- State and federal relocation grants, depending on the type of operation
- 32 trade agreements with 32 different countries
- NAFTA agreement between the U.S., Canada and Mexico
- 40 years of experience in manufacturing different products
- Export experience throughout the world
Q: Which food sectors would benefit the most from moving operations to Mexico?
A: Food sectors that would most benefit from moving operations to Mexico would be those incorporating fresh produce—which are inherently time sensitive and have either a limited or prohibitively costly labor force and capacity opportunities.
Q: While companies can receive cost benefits by hiring a low-cost labor force in Mexico, the U.S. manufacturing workforce seems to keep getting smaller due to low-cost foreign labor and automation advances. What is your company’s response to the importance of keeping manufacturing jobs in the U.S.?
A: Near-shoring jobs to Mexico create (on average) one middle management job in the U.S. for every three manufacturing jobs transferred to Mexico. When compared with other outsourcing options such as India or China – which do not create any U.S. jobs when outsourced – the benefits to the U.S. economy are actually significant. The Southwest Economic Region of the U.S. and Sonora Mexico continue to work diligently toward additional business benefits for the U.S. and Sonora, Mexico.
Q: How does outsourcing to Mexico benefit the U.S. economy in a way that justifies the loss of American jobs, especially in today’s tough economy with a high unemployment rate?
A: Mexico is one of the world’s five largest developing economies. Global market research firm EuroMonitor International forecasts that Mexico will replace Italy as the 10th largest economy in the world within the next decade. The combination of Mexico’s large youth population and consumer spending potential based on economic growth presents large scale market opportunities for U.S. companies. Some companies have identified the potential and have established operations in Mexico for direct market access and to learn more about the Latin American market. Also, Mexico is one of the largest consumers of goods throughout the 2,300-mile border with the United States.
Q: How does production quality in Mexico compare to American production quality?
A: The technology used when producing goods in Maquilas is the same or superior to that in the United States, as technology is typically transferred by the contracted companies individually. Additionally, the large pool of educated technicians coming out of Mexico’s many technical universities are trained to assemble, package, test and manufacture products in a Maquiladora setting. This training is either on par or above the average training manufacturing personnel receive north of the border. Companies that choose to move operations to Mexico also benefit from various NAFTA provisions which encourage North American trade and multiple global standards of operations which companies operating Maquilas in Mexico follow.
Q: You mentioned that Maquiladora workers have training that is on par or above that of American workers. What training are the Maquiladora workers receiving, and why aren’t American workers receiving it?
A: Many of the employees that staff Maquiladora’s come directly from the Major and Technical Universities which are plentiful in Mexico. When Mexico launched the Maquila industry in the late 1960’s, the educational emphasis on training a reliable workforce immediately followed. These institutions have evolved in concert with the needs of the manufacturers. In an increasingly more technical world, Mexico has become more technology oriented. At the same time Mexico was starting its Maquila industry, the idea of the Knowledge Economy was introduced in the United States which resulted in placing less emphasis on training for the trades and manufacturing.
Q: Today’s manufacturing technology often requires highly skilled labor. Are highly skilled workers available in a low-cost foreign workforce on the same caliber as U.S. workers?
A: Yes. The growth of Mexico’s share in the aerospace industry speaks volumes about the craftsmanship and quality of products produced in Sonora, Mexico. Originally, companies like Boeing and Bombardier only outsourced high volume-low tech operations to Mexico, now entire fuselages are designed and built here. The highly skilled labor force today includes well educated technicians and engineers and has grown over the past two decades to create low volume-high tech manufacturing operations. Companies requiring high tech food manufacturing solutions can look to examples such as EuroFresh Farms tomato operation in Agua Prieta, Sonora as an example of successful high tech manufacturing in Mexico that also provides quick turnaround on a time sensitive product.
Q: How do you see the movement toward foreign labor affecting the U.S. economy in the future, especially in the manufacturing sector?
A: The business relationship between the United States and Mexico is symbiotic. According to consulting firm AlixPartners, Mexico currently offers the lowest manufacturing costs among Brazil, China and India. Mexico’s proximity to the U.S. offers the cost- and time-saving advantages of near-shoring, especially manufacturing along the northern border of Sonora which offers immediate access to the United States through the Port of Nogales. This results in cost-savings for consumers in the United States, purchasers of the finished product. Manufacturing components in Mexico as part of a supply chain for larger projects in the U.S. help American companies remain competitive in the global marketplace.
For more information about Collectron International Management’s near-shoring services, visit www.collectron.com.
Interview by Lindsey Coblentz, Associate Editor