U.S. companies that rushed to China in the early 2000s to expand their production are now considering moving back to North America, Mexico to be precise. One of the reasons behind the sudden shift is the rapidly increasing labor costs in the Asian country. The other is the eagerness of Mexican workers and the government itself to make the most from the North American Free Trade Agreement (NAFTA) relationship.
Commenting on the behavior of the lemmings, or “American companies that rushed to China to make things like toys and toilet brushes, only to be searching now for alternatives in Mexico and the United States”, Jason Sauey, the owner of Flambeau said, “They’re all looking for a new model. “It’s not just about cost; it’s about speed of response and quality.”
Sauey is one of the businesspeople who resisted the China temptation and instead opened his factory in central Mexico. He never regrets his decision, especially since it proved to be one of his best. According to the company’s records, revenues at the Mexican plant have increased by 80 percent since 2010. This success has driven Sauey to start searching for a second location near Mexico City.
However, Flambeau isn’t the only U.S. company expanding in Mexico. Well-known brands like Caterpillar, Chrysler, and Callaway Golf have invested billions in Mexico and the economic integrations Presidents Barack Obama and Enrique Pena Nieto believe to be vital to growth. In addition, the trade between both North American countries has increased by 30% since 2010, reaching approximately $507 billion yearly. Focusing further on Mexico, the country’s goods have dominated 14% of the U.S. import market, pushing China’s share downwards and recording a high after many years.
However, there are many people concerned about Mexico’s rise, especially since they perceive that it can cause many job cuts in the U.S. Easing their concerns, economists say that the U.S.’s economy will actually benefit more from outsourcing its manufacturing process to Mexico instead of China. This is because the former is a neighbor and ultimately capable of sharing more of the production.
To make the move easier, decision makers in the U.S. need to take trade efficiency into consideration and make it as important as border security. As companies wait longer at the border, chances are that they will grow more frustrated. On the other hand, Mexico should seriously work on overcoming major problems like education, crime and corruption.