Companies who outsource their manufacturing typically think of China and other Asian countries. Yet in many cases, contract manufacturing in Mexico makes the most sense, due to labor cost considerations and logistics. There are different modes of outsourcing, but for many, the contract manufacturing option is the most advantageous. This is especially true in view of the convenience and cost efficiency of Mexican production.
The Mexican Contract Manufacturing Scene
With the advent of NAFTA (the North American Free Trade Agreement) in the 1990s, Mexico began offering US companies the option of manufacturing in Mexico using maquiladoras. Maquiladoras are manufacturing plants incorporated under and subject to Mexican regulation, employing Mexican labor, and easily managed and/or owned by US firms. With this option, foreign companies can take advantage of the highly skilled, low-cost labor pool in Mexico without actually having to relocate to Mexico. The plants are already established and available.
This is similar to, but not the same as contract manufacturing or subcontract manufacturing, a solution requiring far less involvement by the foreign firm. US companies or companies from other countries need not acquire a maquiladora plant and begin managing these Mexican workers, as convenient as this option may be. Contract manufacturing in Mexico is an even more convenient solution, allowing these firms to place a manufacturing order with another firm with a plant in Mexico.
This option is becoming quite popular for US firms, and contract manufacturing in Mexico is growing. Employment numbers, output levels, and orders placed are rising. But contract manufacturing isn’t necessarily for everyone.
Is Contract Manufacturing in Mexico Right for You?
The maquiladora system is also growing, and for good reason. For many companies, owning or leasing a manufacturing plant in Mexico works. But for many others, a subcontracting option makes more sense. So how do you know which is best for your operation?
In general, companies in the late stage of growth and maturity phases of the business life cycle do best taking advantage of the maquiladora option. This allows for full control and long-term exploitation of the operation. They perform all or most of their manufacturing at this plant. But for smaller to medium sized companies without the infrastructure to handle order flow, it is far more convenient to order from a contract manufacturer in Mexico. Either method takes advantage of the unique benefits Mexico offers. But typically contract manufacturing is a low-risk, low-involvement solution for companies requiring outsourced manufacturing service.
The Benefits of Mexican Contract Manufacturing
- While Chinese labor is on the rise, the cost of Mexican labor is stable and low.
- Companies need not understand the local import/export regulations and labor laws. Each contract manufacturer handles all these for you.
- Start up is quick and easy.
- Companies can experience the benefits of Mexican manufacturing without the commitment of acquiring a maquiladora.
Mexico offers skilled labor and nearby proximity for US companies, and even Asian companies are moving manufacturing there. For large, mature companies looking to shift their focus to Mexico, the maquiladora option is attractive. But for the average small to medium company wanting to take advantage of Mexico’s low costs and proximity, a smaller commitment makes sense. Contract manufacturing in Mexico is growing, and for many, now is the time to join the trend.