China manufacturing: a profitable business
Manufacturing in China has been an attractive option for many companies since this country offers a number of advantages that will be discussed later. But it is important to acknowledge that the Asian superpower doesn’t just shelter foreign companies.
A lot of China manufacturing companies export their products all over the world, like wholesale toys, houseware, drinkware, electronics (including computers, laptops, and mobile phones), even furniture or raw materials.
This has also given rise to increasing e-commerce. Alibaba is a well-known platform, mainly B2B which trades several goods within China and outside. AliExpress is a division of Alibaba, originally founded by small companies, is a B2C platform which has been trying to expand all over different markets [6].
In that spirit, AliExpress has been trying to position itself in Europe, where its biggest competitor is Amazon. Although the Chinese platform has already established itself in Turkey and Russia, Spain and Italy are still the targeted markets for significant growth [7].
As we’ve said, China manufacturing has been very popular among different companies, small and big. But wherever you’re getting your products done, it’s safe to say you need to follow some steps, like identifying the items, checking for the barriers for importing, calculate the overall costs and book your shipments [3] [5].
Advantages and disadvantages
As for importing from China manufacturing companies, there are some pros you might want to know. Here we present you three major benefits. Bruce Mitchell, a senior advisor to Lombard Global Inc., considers the following points as advantages [9]:
• New customers: when you establish your manufacturing in China, there’s a big possibility that you would want to make business with local clients. The introduction of a new product, fabricated in their land, poses a great opportunity for new sales.
• Market size: just remember China’s population exceeds the billion mark. Now think about the huge market this represents. If you have a good product to sell that will be already manufactured there, just combine it with low prices and you’ll have a success formula.
• Operational costs: this particular point needs to be carefully reviewed. Although it can reduce your costs due to lower wages or prices of raw materials and supplies, you need to do a lot of research: for instance, don’t expect savings for materials globally priced, possible taxes, or environmental costs!
To honor the truth, we must briefly describe some of the cons. China manufacturing can turn out to be a harmful move to your company if you don’t balance the benefits and potential risks. So, here are some of them:
• Higher costs in utilities: sometimes some “hidden costs” in electricity bills, for example, can raise the prices three times the cost in the US. Natural and LP gas and process gases like nitrogen and hydrogen may outweigh the labor savings [9].
China pays 50 to 170 percent more for natural gas than the United States does [1].
• Intellectual property risks: counterfeit products are very common in China. There are even testimonies about workers who leave a company because they’ve learned to produce the products and now they start their own manufacturing business. And, of course, legal jurisdiction is very different in the Asian superpower [9].
• Employee attrition: this can present a big challenge, it is true that you will encounter lower wages, but as each new company comes, the employees switch easily jobs, especially if they are offered a raise [9]
• Language and cultural barriers: a key element for being a successful company lies upon communication; so take into account that most Chinese don’t speak English. Also, despite improvements, some manufacturers there have yet poor health and safety standards to level up, this can lead to harmful chemicals (e.g. lead paint) to enter the US [1].
• Quality: although this a very delicate issue, we want to stress that the problem with poor-quality products is the logistics of fixing, reworking, and returning items since you must deal with distance, time, and communication barriers [1].
The cost to ship freight from the US to China can be up to 5,000 USD per container, due to port clearance, freight costs, insurance, documentation, customs, and local fees [10].
So, now that you’ve learned about some of the potential risks of basing your manufacturing in China, it’s time to present to you an alternative. China manufacturing can be replaced with another country, one much more closer to the United States and with different benefits.
to cross through an entire ocean to get there!
Mexico manufacturing vs China manufacturing
That country closer to the US is, of course, the south neighbor: Mexico. According to the US government trade data, in the first quarter of 2019, Mexico bested China and Canada as the largest trading partner for the value of goods, a position held by the Asian nation since 2015 [10].
There are plenty of reasons why this happened: from Mexico’s industrialization, advancements in technology, environmental considerations to educational requirements, or intellectual property protection, the Latin American country offers a good climate for investment.
If you want to know much more details about manufacturing in Mexico, just click here and read why this country has been a top-notch option for the global manufacturing industry.
As a friendly Mexico vs China manufacturing, we present to you seven features in which Mexico can beat the Asian superpower as an option for the manufacturing industry in the US. Do you want toys not made in China, some manufactured goods nearer to you? Keep reading.
1. Prominent industries: electronic, aeronautical, and automotive industries are some of the top industries in Mexico, a country where 89 of the world’s top 100 auto parts producers are established [1]. But that’s not all: medical, plastic, and chemical manufacturers are also in the game.
In Martin’s, we design, manufacture and distribute a wide variety of plastic products. Click here to check out our catalogue, including drinkware, houseware, promotional products and more!
2. Wage stability: in 2018, the hourly manufacturing labor costs in China were at 5.51 USD versus 4.45 USD in Mexico. Although there’s been a slight increase in Mexican wages (4.70 USD and 5 USD in the border region), they are still lower than China and more stable [1].
3. Energy costs: since Mexico’s natural gas prices are linked to those of the US, you’ll find known prices. In China, natural gas prices can cost up to three times more.
As for electricity costs, although you may encounter a higher price in Mexico than in some US cities, everywhere in Mexico you’ll find more affordable prices than in the Asian country [1].
4. Favorable taxes: it’s no secret that the US and China have been in a recent trade war, so tariffs on imports from China are at a high level. On the other hand, Mexican manufacturing goes through a smooth process due to trade agreements like the United States-Mexico-Canada Agreement (USMCA) [10].
Mexico’s maquiladora program allows a manufacturing company to import temporarily production parts, materials, and assets without paying the assessed value-added tax (16%) [10].
5. Proximity and fewer cultural barriers: this translates to cheaper travel expenses, similar time zones to conduct routine tasks. Besides, management and communication are easier thanks to cultural similarities [10].
6. Better logistics: Mexican manufacturing companies are usually more efficient regarding supply chains than Chinese due to proximity. Known as “nearshoring”, Mexico’s vicinity to the US means more distribution options, like trains, trucks, and planes [10].
Besides, border cities can transport the goods to their destination in the US within 24-48 hours; if they come from China they could take up to three weeks! [11]
7. Qualified labor: not only Mexico has a big and efficient workforce, but these workers are usually high-skilled and almost always affordable.
The Mexican government invested in education and structure programs to meet the needs of and strengthen the industrial sector, that is why many companies there have great features, like an advanced plastic product design department or international standard certified processes [10].
Mexico graduates around 115,000 engineers per year, even more than the US! On a per-capita basis, Mexico has more skilled laborers in manufacturing, engineering, and construction than China [12].
So, Mexico offers you this set of benefits. In Martin’s, you’ll find an excellent option for developing your plastic manufacturing project. Little by little, we’ve reached for more clients in our neighboring country, the United States of America. Click here to contact us and we’ll be happy to add you as a new customer.
An assessment with perspective
It seems that Mexican manufacturing comes more suitable for US companies than the Chinese ones. We’ve seen how importing from China can be full of undesired risks. Of course, not everything is bad there, otherwise, there wouldn’t be so many companies that base their manufacturing there.
But we’ve presented to you a list of reasons why you may consider a better option. In these difficult times due to the crisis caused by the coronavirus, companies are in search of saving up costs, so a neighboring country would be more competitive.
If you’re a fan of forecasts and industry solutions, feel free to read our post concerning the challenges that the plastic manufactures have endured during the COVID-19 pandemic.
As for the economic climate, the pandemic indeed hit the manufacturing industry, not for just one country but for most of them: Interact Analysis forecasts a recovery of 2019 production between 2022 and 2024 [13].
In Mexico, 2020 will also end as a negative year, but Trading Economics forecasts a positive 2.20% growth in manufacturing production by 2021 and of 3.0 % by 2022 [14], recovering gradually from the disastrous effect the coronavirus caused for practically every country in the world.
Martin’s operates with a skilled, responsible, and dedicated labor force.
It should be noted that recovery will be slow for many countries, but Mexico stands as a solid economic option for foreign investment and notably for the manufacturing industry. In the end, everyone in the world keeps needing goods and services.
In Martin’s, we understand the business people’s concerns, accordingly, we offer the best assistance and customer service through all the stages of your manufacturing endeavors. Click here and contact us, let's begin a solid and productive business relationship.
Touche. Solid arguments. Keep up the great work.