Rising salaries prompt China to send factory jobs to Mexico

By Chelsea Adams via MultiBrief 

Mexico is accustomed to foreign direct investment. In 2014, Mexico received $22.6 SONY DSCbillion in foreign direct investment, with the U.S. being the single biggest contributor. The trend for Mexico is continuing as companies from around the globe look to the country for cheap labor and low production costs.

In recent months, several major American manufacturers have said they will move production facilities from U.S. soil to Mexico.Nabisco, for example, announced it will move 600 jobs from Chicago to Mexico, and automotive manufacturing continues to move south of the border en masse. Production of American vehicles in Mexico has increased from 9 percent to 19 percent of the industry total from 2004 to 2014.

But it’s not just American companies who look to Mexico for cheap labor. Lately, higher salaries in China are prompting Chinese manufacturers to turn to Mexico for a cheaper source of labor.

“When you have the wages in China doubling every few years, it changes the whole calculus,” Christopher Wilson, an economics scholar at the Mexico Institute of the Woodrow Wilson International Center for Scholars in Washington, told The New York Times. “Mexico has become the most competitive place to manufacture goods for the North American market, for sure, and it’s also become the most cost-competitive place to manufacture some goods for all over the world.”

In October, the state-owned China Communications Construction Company (CCCC) announced it would build an industrial park in Mexico. Depending on how the project unfolds, the project could represent one of the largest Chinese investments in Mexico.

The plan calls for the development of a 1,235-acre site in the western Mexican state of Jalisco. The state government would pay for half the land, and the Chinese would foot the bill for the other half of the land as well as the entire development of the park.

The types of manufacturing companies the park would house will be determined following a six-month feasibility study. Chinese officials will make two trips to Mexico to determine what types of manufacturers could locate there.

To this point, Chinese foreign direct investment in Mexico has been less than 0.1 percent of Mexico’s total. Chinese investment of $380 million was less than that of Ireland, Puerto Rico and Taiwan.

However, rising wages in China have prompted the country to look for more attractive options elsewhere in the world where wages are lower for similar work. A decade ago, China would not have identified Mexico as a potential spot for relocation.

In 2000, Mexican manufacturing workers earned nearly 60 percent more than similar Chinese workers, according to the Boston Consulting Group. Today, Mexican workers earn 11 percent less than their Chinese counterparts.

“Mexico has continued to stay more productive than China per worker,” said Justin Rose with Boston Consulting Group in Chicago. “Sometime in 2011 or 2012, from a labor-cost perspective, it became cheaper to put manufacturing capacity in Mexico than in China.”

Other factors prompting China’s interest in Mexico include a weak peso compared to the Chinese yen, proximity to the U.S. and lower energy costs in Mexico.

About the Author

Chelsea Adams

Chelsea Adams is a former newspaper journalist who made the leap to healthcare public relations and marketing where she worked for a decade. Chelsea has a bachelor’s of social science and statistics in mass communications and a master’s of business administration. She is a full-time freelance writer based in the Midwest.