It’s more than a bit self-serving study, the Where in the World report compiled by the Entrada Group, as it’s a company that helps international manufacturers transition their operations to Mexico. Still, this poll provides some interesting insight as to why a goodly number of small- and mid-size manufacturing executives are now ranking the U.S. and Mexico as “prime locations” for lower-cost production of goods bound for North America.
First a little background. Conducted by Mach Media, by Entrada, this single-blind survey – completed in early 2014 – found that 95% of its respondents are from companies headquartered in “mature” markets (73% from U.S., 14% from Canada and 8% from Europe), with nearly seven out of ten respondents (69%) leading companies with less than 500 employees, and 95% of respondents coming from companies that manufacture goods for the North American market.
Yet by a margin of over four to one, those executives – with 62% of respondents at the VP level or higher in their companies – rank the U.S. and Mexico ahead of China now as top “low-cost” manufacturing locations.
“With labor costs rising in the Far East, it isn’t surprising that companies are considering production locations in their own backyard,” noted Doug Donahue, Entrada’s principal and VP-business development, within the report.
“Additionally, for the past decade or so, manufacturers have seen increased pressure to produce in the same region where their product is sold. Thus, for many manufacturers, the U.S. is becoming more attractive due to rising costs in China coupled with this trend of regionalization,” he explained.
[The Wharton School within the University of Pennsylvania compiled an interesting video delving in greater detail into some of future trends surrounding such “re-shoring” activity.]
Donahue added that Mexico represents in his words “the best of both worlds” as it gives companies proximity to U.S. and Canadian markets, coupled with fully fringed labor costs that can be as low as $1.50 per hour.
“This is competitive with hourly labor in much of China, but minus the huge import costs and other range of issues that make manufacturers wary of producing there," he added – not the least of which are long and often complex supply chain networks.
[The Wharton School touched on supply chain complexity as one of the reasons why “re-shoring” is becoming more attractive in the view of many manufacturers.]
Here are some other findings from Estrada’s survey:
Perhaps the biggest “takeaway” from this particular study is that while re-shoring is by no means a “slam dunk” strategy for manufacturers, its compelling qualities are getting more and more attention from them at the very least – and that could certainly bode well for domestic freight demand if more such relocations occur in the months and years ahead.