• Monday, June 04th, 2012

Financial Times

By Hal Weitzman in Chicago

Mexico remains a far more popular destination than the US for “reshoring” manufacturing to supply North American demand, according to research by a global business advisory firm.

The report, to be published on Monday by AlixPartners, could damp the hopes generated by US cheerleaders for reshoring – where jobs previously outsourced to low-cost emerging economies are brought back home.

US job creation slowed in May, according to official data on Friday that showed employers created 69,000 posts last month, well below average expectations of about 150,000, while the unemployment rate rose to 8.2 per cent from 8.1 per cent.

Barack Obama, US president, has cited reshoring as an example of the country’s increasing economic competitiveness in the face of competition from emerging markets. However, the trend, although real, may not benefit the US as much as some expect, the survey suggests.

Nearly half the manufacturers surveyed by AlixPartners said they saw reshoring as a good opportunity, but half also said Mexico was their top choice for relocating factories designed to supply the US market. However, that is down from 70 per cent last year. In addition, 35 per cent said the US was the most attractive place to reshore production – up from 21 per cent last year.

Some 15 per cent of respondents said they could relocate factories elsewhere in Latin America or the Caribbean, up from 8 per cent last year.

“A lot has been written of late about America’s manufacturing rebound, and there certainly has been a very impressive rebound,” said Foster Finley, co-head of AlixPartners’ transport practice. “However, Mexico still remains the near-shoring locale of choice for companies looking to overcome the higher costs of doing business today in places like China.”

Chas Spence, one of the report’s authors, said relatively low wages continued to make Mexico attractive. “Despite the logistic attraction of the US, the labour arbitrage is still a monumental hurdle for the US to overcome,” he said. “Labour costs are such a big part of the equation.”

Russell Dillion, his co-author, said Mexico was particularly competitive in low-skill assembly work. “US workers can bring more productivity to the table, so that shrinks the gap between the US and Mexico. But in some industries – such as auto – the productivity and quality gap is not as large as it was two decades ago,” he said.

Mr Spence noted that Mexico had superior infrastructure to support relocating factories. “They have an entire industry dedicated to serving a manufacturing transition,” he said. “The US doesn’t have that to the same extent, because we’ve never really done it – reshoring is a new thing.”

Of the companies that said they were considering bringing production closer to the US, almost 90 per cent said they were likely to relocate within three years.

About half the companies surveyed were from the automotive or aerospace industries. Respondents said the chief attraction of relocating from Asia was lower freight costs, followed by improved speed to market and lower inventory costs.

Category: Mexico, Nearshore
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