Mexico’s U.S. proximity becoming an advantage?

By Joe Nowlan -- Industrial Distribution, 7/10/2008 10:25:00 AM

When looking at opening a foreign branch, location is crucial, but what about proximity? Some companies in the United States are seeing the advantage of traveling to Mexico rather than half way around the world to China.

Small to mid-size businesses, such as many of those that are members of groups like the Industrial Supply Assn., have been looking more closely at Mexico (and Canada)—a theme the ISA will be looking at more closely in upcoming trade shows and educational sessions, explains ISA executive vice president John Buckley.

“We've been looking around and figuring what our global strategies might be,” Buckley recently told INDUSTRIAL DISTRIBUTION. “When we say 'global strategy,' we're starting to mean North and South America.”

In INDUSTRIAL DISTRIBUTION’S 62nd Annual Survey which will be previewed in our August issue, 63 percent of respondents said they are conducting business outside the United States. Of that number, 54 percent are setting up branches or locations in Mexico; 31 percent are buying from Mexican companies and 66 percent are selling to Mexican companies.

As for China, 63 percent are buying from China, 27 percent are selling to China and 30 percent are setting up branches or locations in China.

Those numbers aren’t that far apart. And a recent article published by Manufacturing.net “Mexico vs. China,”  pointed out some differences as well as some similarities.

It was written by Bob Cook, president, and Luis Ruiz, marketing and research associate, of the El Paso Regional Economic Development Corp. REDCo serves as a no-fee consultancy to businesses interested in relocating or expanding to the Greater El Paso, Texas, area—a region which also includes portions of southern New Mexico and the Mexican state of Chihuahua.

According to the REDCo findings, in 2001, U.S.-Mexico trade was $232.9 billion, which was almost double that of U.S.-China trade. By 2006, China passed Mexico in total trade with the United States for the first time, and in 2007, U.S. trade with China ($386.7 billion) was approximately 13 percent higher than trade with Mexico.

However, U.S. exports to Mexico are still more than double the level of U.S. exports to China.
The article points out that Mexico’s strengths tend to favor companies that manufacture highly customized products that are particularly sensitive to shipping costs and lead times. China’s labor skills are typically less developed than their Mexican counterparts. As a result, China is typically better suited for high volume, low mix manufacturing operations.

When China operations are managed properly, many United States companies have profited—but “managed properly” is the key phrase. The Mattel Co. found that out last year when it had to recall thousands of its toys after they were discovered to have contained lead paint.

The Cook-Ruiz piece also found that Mexico’s labor force may be more technologically savvy than China’s, pointing out that there are 62 computers and 220 cell phones per 1,000 people in China, while there are 228 computers and 600 cell phones per 1,000 people in Mexico.

Though it could be argued that Cook and Ruiz are looking at the comparison from a pro-Mexico perspective, their numbers and observations are thought-provoking.

In the August issue of INDUSTRIAL DISTRIBUTION, a news story will explore the state of Mexican business in more detail. One of the people interviewed for that article is Ed Johnson, regional manager of Kaman Industrial Technologies. Johnson oversees some of Kaman’s Mexico business and is upbeat about the country and doing business there.

“Understanding how to do business there [and] having the right associations with the right kind of companies there is important,” Johnson says. “It’s very competitive down there. ...But there’s a lot of opportunity in Mexico. We’re very pleased with what’s going on there.”