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Mexico, an alternative to reducing operating costs outside China

Moving manufacturing production from China to Mexico could reduce operating costs by up to 23%.

A new study by consulting firm Pricewaterhouse Coopers (PwC) says the COVID-19 pandemic has changed the prospects of many U.S. manufacturers and Mexico could be an alternative to relocate their production, reducing their operating costs by up to 23%.

The report “Beyond China. Towards greater diversification and cost efficiency in supply chains,” he says that many companies’ dependence on China and the health crisis is forcing them to consider other low-cost countries (LCC), including Mexico, Malaysia, Vietnam, and Thailand.

Based on the cost of destination, delivery times, and risk factor, U.S. manufacturers could reduce their operating costs by an average of 24% if they move their production from China to low-cost countries.

“80% of imports manufactured in China could capture cost efficiencies if they occurred in other Asian LCCCs, such as Malaysia, Vietnam or Thailand, among others,” the report notes.

In a PwC survey, 16% of American companies operating in China said they already had plans to readjust their production and supply sources before the pandemic.

Even so, the change is expected not to be complete, but to choose to geographically relocate certain operations and sources of supply, in which case production costs could fall by between 5 and 20%, compared to opting for China alone.

Some factors that place Mexico as an option are the certainty of the entry into force of the Treaty between Mexico, the United States and Canada (T-MEC); the cost of Mexican labor that remains below other countries, including China; and the low logistical amount.

“Our country is in a position to provide greater diversification and cost efficiency, being able to mitigate the commercial and geopolitical disruptions that U.S. companies have had to weigh in recent years,” says Carlos Zegarra, Management Consulting partner at PwC.

Posted in latin america

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