Last year, I asked my good friend Andrew Hupert of North American Strategic Planning to explain what is involved in moving manufacturing from China to Mexico. I chose Andrew for this because he has spent so much time in both China and Mexico, navigating their manufacturing systems from the inside.
My law firm frequently consulted with Andrew when we first started doing China legal work, and at that time Andrew was living in China. Though Andrew had for decades tied his life and career to China, he — like me — was one of the earliest proponents of a post-China manufacturing world. So much so that Andrew moved to Mexico, reinvigorated his Spanish language skills and began helping companies — especially companies looking to leave China — navigate Mexico. Who better, then, to write about what it takes to leave China (in whole or in part) for Mexico than Andrew Hupert?
Andrew wrote a series of five posts on the differences between China and Mexico manufacturing and I urge you to read all five of these:
- The China Manager’s Guide to Mexican Operations: Comparing and Contrasting China and Mexico Operations
- Mexico for China Managers, Part 2: China vs. Mexico as Supply Chain Hubs
- Part 3: Comparing China and Mexico Manufacturing at the Operational Level
- Mexico for China Managers, Part 4: A Guide to Cross-Culture Negotiation
- Mexico for China Managers, Part 5: The Three Types of China-Mexico Supply Chain Transitions
Then at the end of last year, we wrote Three Things Everyone Leaving China for Mexico Should Know, as an introduction to what we expect will be a roughly ten-part series to be written over the next 7-9 months. This year we (mostly Andrew) have written Three Mistakes We Made in China and Three Things We’ll Get Right in Mexico, Mexican Supply Chain Management: You’re not in China Anymore, Five Potential Shocks to your Chinese Supply Chain in 2023, and Your China Supply Chain is a Bet Against the House.
The below was written by Andrew (with a few revisions by me) and it constitutes our fifth piece in the series.
When it comes to getting China-based companies production-ready in Mexico, I have in my head what I call my “Checklist of One.” This checklist of one is the cheapest, most important step you’ll ever take on a business survey:
- Is Mexico right for you? Yes ___ No ____ Need more info ____
Westerners in China and Asia ask me about Mexico often. The people I know have been in China for a long time and most want to start the moving from China to Mexico conversation with a quick gut-check type of overview. The question they want answered is, “is Mexico for me or not?” It’s part about their business success, part about their life/family/lifestyle/sanity/etc.
Let’s do MORE INFO on three crucial areas:
- Factory Operations
- Supply Chain & Product Design
- Work and Life in Mexico
This is the “wish I had known before…” category. The real feasibility studies and business planning comes after. This is more of a quick cultural compatibility quiz.
1. Factory & Operations
You will most likely have your own factory in Mexico. If you don’t want that or don’t know how that works, you should talk to someone qualified BEFORE moving further into Mexico. If, on the other hand, you LIKE running your own factory, then you’ll probably do fine in Mexico. It’s an operations-oriented business culture, and everyone is fluent in Lean Manufacturing and The Toyota Way. Configuring the actual building and infrastructure is pretty simple thanks to a type of industrial park that specializes in working with international investors and manufacturers. Filling it with machines, materials, and people will be your job.
Mexican managers talk about “production companies” and “product companies”. Production companies are factories and supply chains that just so happen to have a sales team attached somewhere. These are the good companies (from the Mexican manager’s perspective).
Product companies are brands or successful products — but the owners may not be experts at the fabrication processes. They are more likely to identify as marketers than as engineers or technicians. They may not have their own network of suppliers or even a complete bill of materials.
If you are a production company, you might feel right at home in Mexico. There are two dozen or so significant production zones distributed around the country, competing with one another to make life easier for new factory operations. Search on industrial parks to gauge which cities are hot at the moment. Spoiler alert: Monterrey is already getting pricey. Get used to hearing about Bajío cities: Leon (Guanajuato), Guadalajara, and Querétaro. There is a corridor that runs roughly from Jalisco and the Port of Manzanillo on the Pacific, across and up to Monterrey/Port Altamira on the Gulf that encompasses the geological low-land – called a bajío). The industrial parks around these cities have been built for YOU – foreign invested factories set up for export to the US. Pristine factory space on major roads, near airports or rail hubs, some offering “shelter services”. The Mexican shelter system is a set of local business registration requirements for efficiently accessing US markets. You can register for your own or use a “shelter service provider”, which can be your new landlord.
Product companies need to make decisions about owning a factory. Mexico isn’t necessarily a great place for reverse-engineering or product design, but everything here is ISO-9xxx, so you won’t have any trouble executing third party plans. If you are considering your first factory, Mexico could be a great option. If operating your own factory is not part of your plan, then you might need to think about alternatives.
2. Supply Chain
This is the big one. In Mexico, your supply chain is on YOU. You have to not only find the sources, but also manage the maze of regulatory requirements and compliance procedures. Here are the main factors:
The Mexican supply chain ecosystem has been built by generations of giant corporate procurement teams – especially in the auto and aerospace industries – since the 1930s. Mexican corporate culture is by the book, and it’s not a very innovative book. Mexico is great at moving containers around. It is less great at filling those containers. There isn’t much of an upstream manufacturing base for parts and components. The Mexican supply chain gaps in the middle. If you need to fill a brand-new space with cutting edge equipment, a production team with MNC experience and a Six Sigma blackbelt management team, they can do that. If you want to hire fifty guys with shovels, or a market full of craftsmen carving figurines – no problem. But anything in between corporate supply chains and semi-skilled manual labor is tough to find in Mexico. Unfortunately for you, that includes the upstream supply of parts, components, and specialty processors that are so plentiful in Asia.
Contract manufacturing is less developed in Mexico than in China. The problems here are twofold.
First, the critical mass of suppliers just isn’t here. There isn’t the concentration of contract manufacturers in Mexico found in China. Also be aware that the meaning of OEM is different here. It looks like a wholly owned subsidiary that doesn’t do contract work. Independent operations aren’t exactly secretive, but they certainly aren’t working hard to attract new English-speaking strangers. And they’re geographically distributed, so building a network of suppliers is even more challenging.
The second issue is that these operations tend to be smaller, family run businesses that aren’t necessarily willing to shift methods or ramp up production for your business. These are more like partnerships than paying for a service, and it’s not unusual for relationships with contract manufacturers to go bad for seemingly no reason.
The post-production supply chain, however, is efficient, integrated and fast. Once your products leave the factory gate, they will be reaching customers within days. Once set up, operations in Mexico tend to run a lot smoother than in China because marketing, production, and logistics are all in the same time zone and on the same org chart. Your IP is safer, and your ability to respond to end users can be much stronger. The regulatory and customs environment will remain challenging as new rules emerge and enforcement efforts against tariff-avoiders and label-swappers heats up, but the 2,000-mile land border means logistics and deliveries are more predictable and transparent. Once you are up and running, Mexico can provide clear advantages in terms of efficiency, cost, and customer satisfaction, provided you are going after US markets.
Let´s touch base on the design and planning part. The prototypes. The molds. The bill of materials. China production clusters (Shenzhen for electronics, Chengdu for auto) made it possible to succeed with a looser level of design. You can’t get new parts or specialized processes around the corner here in Mexico like you could in Shenzhen. Do you have the design ability to work without a Chinese safety net?
3. Living and working in North America
For some this is a deal-breaker, for others a dealmaker. You are entering Mexico with a lot of lifestyle choices, because most of you won’t live on-site. It’s closer to the US, and many — if not most — US managers with Mexico responsibility fly in and out for a day or two. That means you can run it from your US operation (same org chart, similar time zones, easy language issues) if you have a US operation. For those of you who were all-in on China, you have decisions to make.
If you want to base yourself in Mexico but not be in the immediate proximity of your factory, then you have some great options within easy travel distance. CDMX and Monterrey are sophisticated and modern. There are more traditional cities and neighborhoods with established expat communities all over, and they are fantastic if that’s what you are looking for. Generally speaking, you can get more and spend less in Mexico, though CDMX is pricey. One word of warning – there is not much interstate integration here. The relationships, business centers, and infrastructure are oriented around trade with the US. It’s much easier to live and work in the same cluster or along the same traffic flow. Direct flights to Houston are easy. Direct flights between Mexican states are sometimes tricky. The level of infrastructure development is much lower in Mexico than in coastal China.
If you are running an international operation, Mexico City (CDMX) might be good. For some reason, locals regard CDMX as though it were part of another world, but it is a significant business center in Latin America, and a suitable place for international operations and transactions, as well as being a world-class cultural center. But though Mexico has plenty of expat friendly cities and communities, you won’t have the active professional social life that business life in Shanghai and Shenzhen offered. There are no AmCham happy hours, Sundowners, Eurocham Wine & Cheeses, or professionally boozy events that drove China networking. There are lots of expats, but you’ll have to chart a course between the sunbird retirees and the digital nomads (who are universally disliked throughout Mexico, but particularly loathed in Mexico City). A Mexico City waiter knows PRECISELY how long it should take to consume an Americano regular and a scone, and thus when you should be exiting his sphere of influence. Spoiler alert – it’s a little over 18 minutes. Que aproveche.
4. Final Word
Some of you have already made a decision, others may have further questions. Things may change, but for now the key issues are 1) access to US markets, 2) factory operations, and 3) supply chain management. If you can set up in Mexico, you have a number of decisions about where to base and live, but those are much easier to make and implement than in China (for most of you).