MEXICO CITY — Robert Moser moved the manufacturing of his company’s lines of cleaning products and kitchen gadgets to China during the last decade. Now his company is moving its manufacturing again — to Mexico.
“When you look at total costs, you’re pretty much at parity,” says Moser, president of Casabella, based in Congers, N.Y.
Companies like Casabella couldn’t move out of Mexico fast enough a decade ago, sending production to China to take advantage of the cheaper wages and prices in a country keeping its currency artificially low.
But the cost of doing business in China has been rising steadily, say companies that have returned to Mexico. Salaries are surging there. The Chinese currency, the yuan, has risen in value, making goods more expensive to export. Shipping costs have risen as well, making a move to Mexico even more attractive to companies whose primary markets are in the Western hemisphere.
The Mexican peso this week rallied on optimism about the country’s economic prospects following an unexpected rate cut last week. The peso has risen 2.8% in 2013.
Recently installed President Enrique Pena Nieto, meanwhile, has promised changes to Mexico’s tax system and reforms of its government-run energy sector to attract more outside investors and businesses from the USA and elsewhere.
“Mexico is a stable country, close by, but unfortunately with cheap wages,” says Eduardo Garcia, publisher of online business journal Sentido Común.
Wages were six times higher in Mexico a decade ago, but only 40% higher than those paid in China in 2011, according to a recent report by the International Monetary Fund. Mexico is part of more than 40 free trade agreements, which tends to reduce costs further. Then there is the weariness of doing business in China what with the midnight telephone conferences and 16-hour flights to Beijing — says Ed Juline, whose Guadalajara-based company, Mexico Representation, consults and represents manufacturers moving to Mexico.
“I have a dozen projects on my plate” of companies that want to get out of China, Juline says.
The upswing in manufacturing — about 20% of Mexico’s GDP — is driving the Mexican economy. Mexico says it expects its economy to expand by 3.5% in 2013.
It’s a reversal of fortune for Mexico, which lost manufacturing jobs to China during the last decade and watched rival Brazil boom by selling boatloads of raw materials to the emerging Asian economy.
“Mexico was uncompetitive,” Juline says.
But China was gaming the system against places such as Mexico, he says. Along with keeping its currency low, China has subsidized fixed costs to benefit its commercial activity, which hurt Mexico, he says.
Meanwhile, lead times for Chinese factories are increasing and manufacturers there are showing less interest in handling smaller orders, says Mike Rosales, whose Los Angeles-based company, Manufacturing Marvel, makes toys and trinkets in both China and Mexico.
Rosales says that shipping costs for him jumped when oil prices hit $100 a barrel, and the lack of protection in China for industrial and intellectual property became problematic.
“They would ship your product out the front and your product with someone else’s name out the back,” he says.
Some of the merchandise being made in Mexico ranges from figurines to flat-screen TVs, along with advanced items such as aerospace parts and automobiles — 2.8 million of which were assembled south of the border last year.
Some here say more manufacturing in Mexico benefits U.S. businesses because it offers them suppliers on both sides of the border. Jim Raptes, custom sales manager at Deco Products, which makes zinc castings in Decorah, Iowa, says his Mexican business has increased from 1% of total sales to 10% over the past five years, due to orders from manufacturers in Mexico.
Security remains a concern in Mexico, Juline says. But he feels the violence, due largely to drug wars, has given few companies pause about coming south.
Executives won’t travel to Mexico, he says. “But the Americans who do come down here secretly love it.”