Mexico: Mexico, The Best Fit For The International Expansion Of U.S. Companies

Last Updated: 25 June 2015
Article by Resendiz Wong Abogados

In order for a company to survive in this rapidly evolving global economy, it must eventually expand at least a portion of its business operations overseas or across borders, to become a more lean and cost-efficient organization. One can rest assured that the competition is now or is currently in the planning stages of taking such steps, and it would not be wise for a company to allow itself to be left behind.

Many consider the top three locations for such expansion to be between Mexico, China and India, however after careful consideration of all the facts it becomes clear that Mexico is now, and has always been the best location for the international expansion of U.S. companies' business operations, whether in production, sales or services.

Some of the reasons why Mexico is the best destination for the international expansion of U.S. companies are:

  • Low Labor Costs – The average factory worker in Mexico is paid $2.60 an hour with tax and benefits included, as compared to the U.S. 2002 average of $21.11 an hour (Business Week, Dec 14, 2003). It is true that the average pay for manufacturing labor in China is less than that in Mexico, at approximately $0.95 an hour, but in China companies are expected to provide their employees housing, food, medical care, recreational activities, and uniforms; the exact benefits are negotiated with the local government (local communist party headquarters).

    Because of the extensive responsibilities involved, many international business consultants would argue that bringing on a new employee is more like adopting a worker as opposed to hiring one. In the end, unless a company intends to employ a very large number of factory workers for a large scale industrial operation, establishing a subsidiary in Mexico is by far the most cost-effective option.
  • Mexico is a Big Consumer Market in and of Itself – Mexico is the second biggest consumer of U.S. products and services worldwide. By establishing manufacturing or service industry operations in Mexico, U.S. companies are not only producing their products or providing their services more inexpensively, in a business friendly country which borders the U.S., but one with a consumer market in which their services and goods are needed, and one in which their products will not need to be transported very far to reach; something that has yet to develop in neither China nor India.
  • Proximity to the United States – Being that Mexico and the United States share a common border, the costs of shipping and business travel between the two neighbors is significantly less than between the U.S. and India or China. For example, via air, the cost of shipping from Mexico to the U.S. is estimated to be around $1.90 per kg while from China it is estimated to be about $4.30 per kg; from India $3.90 per kg.

    In regards to marine based shipping costs, moving a 40 ft container from China to a U.S. port will run your company about $3,800, not to mention the additional costs involved in further ground transportation to get the products to their final destination city. All the while, a fully loaded tractor trailer from Mexico to anywhere in the U.S. costs approximately $2,800, a significant difference to say the least.

    Even business travel by company executives to maintain an eye on your overseas operations is a cost that needs to be taken into consideration. The cost of traveling from the U.S. to Mexico fluctuates from $300-$600, depending from where in the U.S. you begin your travel, while flying from the U.S. to China can cost anywhere from $800-$2,000; to India from $1,100-$2,000.
  • Same Time Zones as in the United States – Many companies fail to take into consideration the effects of having business operations located on the other side of the planet, because through technology our world has become so interconnected that we no longer view distance as such an important factor anymore. However, imagine how often a problem or question arises within the typical company or organization which requires the immediate and direct assistance of someone at the corporate headquarters, but then imagine that this is occurring in the middle of the night when all the corporate managers in the U.S. are at home asleep. Is that something your company is prepared to make significant changes to adapt to? U.S. companies with operations in India or China are often required to hire a night shift in the U.S. to cover some of these responsibilities, and it is not too easy to find an effective manager willing to work such irregular hours.

    Unlike China or India, Mexico shares the same time zones with the U.S., making communication between offices and production lines in the U.S. and those in Mexico much simpler and more time and cost-efficient.
  • Higher Education – Mexican institutions of higher education graduate around 30,000 engineers a year while the U.S., a nation with three times the population and many more students from abroad studying technical fields, only graduates around 50,000 engineers a year. Furthermore, the average salary of an experienced well-trained engineer in Mexico is nearly half that of his counterpart in the U.S. This means inexpensive skilled labor for U.S. companies operating in Mexico. Again, other industries offer similar disparate salary comparisons.
  • Availability of Raw Materials and Secondary Sources – China is extremely short on many raw materials and must import a significant portion from other countries, and the alternative sources are limited as well. This can cause shortages from time to time, which could run up the price of the raw materials and thus your production costs, or worse case scenario, force a temporary shutdown in production all-together.

    Mexico has a wealth of raw materials and various sources for them throughout the country, therefore most forms of raw materials do not need to be imported from other countries. This helps cut both costs and lead times by a significant margin, not to mention the increase reliability in supply and thus production.
  • Shorter Lead Times – Companies also need to consider the lead times pertaining to the countries where they are interested in opening a new production line. From step-one in the production process, receiving an order and then ordering the necessary raw materials required to match it, all the way to the day the product will be put onto the market. For example, in China it will take around 8-10 weeks to locate, negotiate and purchase the raw materials you will need for production, and to then have them shipped to your production facility; whereas in Mexico, this same process will only take you 3-5 weeks. The reason for this notable divergence is that China, as mentioned previously, is extremely short on raw materials and you will need to import them from another country.

    Production time in both countries is relatively the same, hovering around the 2 week mark, but you then need to take into account the very distinct shipping times. It will take anywhere from 4-6 weeks to have your products shipped from China to the U.S. (including customs), whereas it will only take a week when shipping from Mexico. After doing the math you will see that on average your lead time for production in China will be around 17 weeks, whereas in Mexico it will only be around 8 weeks; a difference of more than 50%.
  • Global Politics – Something of a hot button issue, but one far too important to be ignored, is that of the current and potential future political relations between the U.S. and China. Many economic experts argue that the two economic behemoths have such tightly intertwined economies, that conflict between them will never occur because both have far too much to lose. However, many geopolitical strategists see China's efforts to keep their prices low and foreign investment high, as a direct strategy to grow their military might.
  • Business Friendly Government – The recently elected President and his Administration are staunch believers that the creation of jobs through the growth of the economy is the best way to fight poverty. To encourage more foreign investment, business rules in Mexico are more or less the same as those in the U.S. In fact, U.S. companies in Mexico may be wholly owned in all but a few specific industries. By comparison, in China a company's second partner is by mandate the local government (Chinese Communist Party), regardless of the industry under which the company operates. Furthermore, employee salary rates and benefits are negotiated directly with the local government and not with the employees themselves.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.