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Rethinking “Made in Mexico”
September 28, 2007
As U.S. importers continue to rethink their manufacturing options, eyes may once again turn to Mexico. Mexico has, of course, always had the advantage of being next door rather than an ocean away. It seems, however, that despite NAFTA and a greatly improved and more stable Mexican economy, toy production has, to the large part, still not moved there.
Why? The two major reasons that I hear given are pricing that is not competitive with China and a lack of quality small plastics manufacturing.
It may be time to take another look at those objections. Here are some reasons why:
Prices are going up in China so the costing gap with Mexico is closing. Inflation alone is a problem with the “Chinese Consumer Price Index” increasing 5.5% in July and 6.5% in August. The Chinese Yuan has risen almost 9 ½% against the dollar since it was revalued in 2005.
Risk or perceptions of risk are now greater with products made in China. When you factor in the risk premium, Mexico may be, at least financially, look like a safer option.
The need for re-testing products is slowing the flow of some products into the U.S. The Port of Long Beach is usually backed up so, what is a typically a bottleneck could turn into something worse in October and November. There could put some products at risk of making it to the stores late in the Christmas season this year. That is going to make the short trip from Mexico look a lot better.
Mexican trucks can now cross the border. This means that, for all extents and purposes, logistically speaking at least, “Made in Mexico” is pretty close to “Made in the USA.”
Some US manufacturers are increasing their investments in Mexico. The San Antonio Express News in a September 12, 2007 article reported that “…U.S. manufacturing orders rose in five of the first seven months of 2007, according to government statistics.” Significantly for prices, they go on to say that “Mexico's government cites falling inflation and interest rates as reasons for the surge in manufacturing investment this year.”
The pricing gap may be closing. What about the quality gap? It should be in everyone’s best interest to fix that problem. What is it going to take?
Posted by Richard Gottlieb on September 28, 2007 | Comments (1)
