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Why China Will Start Off-Shoring to Mexico
Mexico’s manufacturing boom has proceeded in stages. At first, it was built on auto manufacturing. While that continues to surge, American companies have now started relocating simpler manufacturing from China to Mexico.
There are many reasons for this newer wave of manufacturing. Mexican labor has long been more productive than Chinese labor. Now, as Chinese wages keep rising, it’s expected that Mexican manufacturing labor will cost 30 percent less than Chinese labor by next year, after you adjust for productivity. It’s also easier for US firms to oversee operations in Mexico. And thanks in part to the US natural gas glut, energy costs are far lower in Mexico than in China.
As a result, a slew of US companies like headset-maker Plantronics and hula-hoop maker Hoopnotica have been shortening their supply lines, moving their manufacturing capacity from China to Mexico. It’s a striking trend for those of us who saw the eagerness with which so many North American businesses set up manufacturing in the World’s Factory over the past 20 years.
But now, you should get ready for a more striking trend: Chinese companies will start moving their own manufacturing to Mexico.
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