It’s already that time of year again, and now that the holiday season is approaching, the process of shipping goods from China to the rest of the world starts to become an increasing challenge. As the ports in the U.S. get busier, and logistics bottlenecks start to increase, companies find it necessary to pull in schedules to ensure no interruptions in their supply chains. Soon after the western holidays are over, it’s then time to manage the Chinese New Year holiday season.

For more than a decade, China has been seen as a great place for companies across the world to manufacture goods. The enticingly affordable cost advantage of low wages combined with a devalued Yuan has made China uniquely desirable. However, now that firms are taking a much harder look at the total costs actually involved in off-shoring to China, this advantage has been eroding.

MEC realized back in the 90s that extending electronics manufacturing services into China would be a risky investment in the long term, due to a number of factors. Therefore, MEC Southwest, a PCB assembly facility in Tecate, Mexico was established for companies that value offshore electronics manufacturer pricing, alongside logistics simplicity. Recently, MEC Southwest moved from that first facility into a green field facility optimized to support its electronics manufacturing services (EMS) customers while also increasing the box build and full product assembly capabilities it can offer.

MEC Southwest’s new facility is part of a larger technology campus development which allows for future production floor space expansion. A tour of the factory will show a workplace culture focused on building Perfect Product within a safe, clean working environment. As a part of this new electronics assembly facility, MEC Southwest provides various accommodating shared amenities designed to support the stable, well-trained workforce. The location of this Tecate facility also has an important border crossing time advantage when compared to Tiajuana. It sits only a short drive away from San Diego yet has a much lower volume of border traffic, which results in rapid crossing times for both visitors and shipments.

What makes a company decide to re-shore production to Mexico?

These five reasons begin to explain why companies are re-shoring to Mexico as a low cost alternative:

1. Communication – Although significant, cultural differences surprisingly do not create a large barrier to efficient communication. Very often instead, it is the geographical time difference which poses a far more practical problem for companies to face. Sourcing teams from the U.S. find lengthy visits offshore, and unexpectedly longer workdays can become stressful – both of which are usually driven by the 14 plus-hour time difference. Chinese firms may have sales and marketing personnel fluent in English, however the turnover and demand rates for qualified program, quality, and engineering management personnel with adequate levels of English fluency are making it more difficult to find experienced workers who have those abilities within the most popular markets. This communication gap can potentially slow down production and/or cause expensive errors when a crucial line of communication for person-to-person technical support is not available. By comparison, technical teams in Mexico’s border regions are truly bi-lingual in English and Spanish. From San Diego, it is a scenic 1-hour or less drive through rural Southern California, then a ten minute trip across the border to MEC Southwest’s new electronics manufacturing facility.

2. Cost Trends – According to research released in April 2013 by Bank of America Merrill Lynch, average hourly wages are now 19.6 percent lower in Mexico than those found in China. By comparison, jump back one decade to 2003, and the average wage in Mexico was 188 percent higher than China’s average wage. Simply put, when adjusted for productivity, Mexico’s wages are trending below China. The study also projects that Mexico, as Latin America’s second-largest economy, will have an edge over China in the U.S. market for at least the next five years due to stagnant salaries being fueled by strong population growth within the country.

3. Logistics Simplicity – With a short travel time, product headed to its U.S. customer typically arrives to them the next morning, when it leaves a border factory by noon the previous day. Companies have a quicker raw material finished goods pipeline, and also scheduling variable demand for a product is far less complicated. Chinese companies often charge higher rates to provide specialized services, such as U.S.-based kanban programs or ship-to-end customer options. However, factories in the Mexico border region typically utilize a U.S. based warehouse which supports the production facility, so that these options and services can be supported at relatively lower costs.

4. High Mix, Variable Demand Production is Valued – With their high production volume requirements, and near-capacity utilization approach, the business models of many Chinese contract manufacturers lack flexibly. By pulling in schedules, discouraging line changeovers, and insisting freight forwarders consolidate shipments for better rates, companies which require variable demand options often cannot receive acceptable levels of service. By contrast, at MEC’s Tecate facility, the systems and processes are optimized to respond in accordance to variations in customer production schedules.

5. Payment Term Differences – In China, manufacturers building for export have limits on the amount of raw material which they can bring into the country, as dictated by a set of material import rules. As a result, Chinese contract manufacturers often need to forecast on a quarterly basis to keep supply levels balanced within these limitations. In many cases, customers are required to purchase any excess material, and reconcile their raw material supply, which increases working capital requirements. This often forces companies having a “down quarter” to still purchase what they initially forecasted, when they would otherwise not want to do so. In Mexico, contract manufacturers typically have terms similar to those of U.S. contract manufacturers, where excess material is reconciled when it becomes inactive or obsolete.

Find more reasons in this recent Bloomberg BusinessWeek article about how Mexico Is Becoming a Global Manufacturing Power.

MEC is well positioned to support transfer of work to Mexico, with a brand new world class facility in a safe, efficient border region and nearly two decades of EMS outsourcing experience South of the U.S. border. Simply contact Rick Cummings at rcummings@meccompanies.com to schedule a tour of our Tecate, Mexico electronics contract manufacturing facility