OM in the News: In the Race Between China and Mexico, Mexico Tries to Edge Ahead

The Wall Street Journal (Sept. 17, 2012) reports that China’s rising wages are giving a chance for Mexico to wrest back some of the business that chased cheap labor across the Pacific a decade ago. Mexico may already be a less-expensive place to make  products for the U.S. market, as China’s average manufacturing wage topped Mexico’s this year, when accounting for differences in productivity. Mexican workers typically produce more per hour than Chinese workers, and the proximity to the U.S. means companies can ship faster and at a lower cost to American customers.  Mexico’s average wage is $3.50 an hour. The average across China has climbed to $2.50 an hour, from 60 cents in 2000.

As global location and outsourcing decisions go, there will not be a wholesale rush back to Mexico. The drug war there scares away new business, and the country has built neither the skilled labor pool nor parts-supply chain to mount a serious challenge to China’s manufacturing prowess. But as Chinese wages continue to rise, Mexico looks the best-placed to benefit, as it is the least-expensive country outside the U.S. to manufacture for the U.S. market.

Customers who buy a Dell computer at a big-box retailer get a product made by Foxconn in China. But shoppers on the company’s website can customize their orders –and those computers are assembled and delivered from a massive Foxconn plant near Ciudad Juárez, which churns out 35,000 laptop and desktop computers a day, and can have a truck on the U.S. side in a few hours.

Here are a few World Economic Forum competitiveness rankings (out of 142) on the 2 countries: Overall– China 26, Mexico 58; labor market efficiency-36 vs. 114; available scientists– 33 vs. 86; infrastructure quality– 25 vs. 73. Mexico’s homicide rate is nearly 18 times that of China.

Discussion questions:

1. Why would businesses prefer to locate or outsource to Mexico?

2. Why would they prefer China?