Does Mexico beat the US for reshoring?

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Michael A. Marcotte Workers prepare for the March 8 start of Plastimagen 2016 in Mexico City.

One recent study says U.S. manufacturers now prefer Mexico to the United States when it comes to reshoring — the decision to move production from Asia back to North America. It said Mexico combines the relatively lower costs of China with much quicker access to the U.S. market.

Not everyone agrees that Mexico is gaining, however. Other studies and one advocacy group in favor of manufacturing returning back to the U.S. say factors like safety and security are hurting Mexico, putting the U.S. ahead when a company wants to relocate parts of its supply chain closer to home.

It’s not a “one-size” or “one-industry fits all” kind of decision, and given the complexities of the manufacturing supply chain, it’s probably not surprising that different reports could come to different conclusions.

The study “Footprint 2020: Expansion and Optimization Approaches for U.S. Manufacturers,” for example, said that one-third of companies are considering bringing operations that had been sent offshore in the last two decades, primarily to Asia, back to North America.

But rather than return to the U.S., Mexico was the more likely destination, according to the October report from consulting firm Deloitte and the Manufacturers Alliance for Productivity and Innovation, a trade association in Arlington, Va.

“Mexico is the first choice destination to re-shore operations, followed by the U.S.,” the report said. “[Mexico] offers greater access to the U.S. market, but allows companies to maintain advantageous operating cost structure.”

The report said reshoring focused on moving primary production and assembly operations currently in China, India or Brazil closer to the U.S. market. The study looked broadly at how companies will be changing their global manufacturing investment decisions through 2020.

Others, however, see Mexico differently.

Mexico trailed the U.S. by a wide gap as the most attractive location for reshoring in 2015, with 31 percent of companies favoring Mexico and 55 percent favoring the United States, according to a survey by New York-based consultancy AlixPartners LLP.

That’s a flip from 2012, AlixPartners said, when 49 percent of respondents to its survey of senior manufacturing executives called Mexico the top choice and 36 percent said the US was the best spot for reshoring, or nearshoring, as it is sometimes called.

The consulting firm said supply chain executives are worried more about political or criminal instability.

“Even with clearly sustained North American and western European interest in nearshoring, levels of enthusiasm are tempered by concerns about stability and security in both established nearshoring locations — such as Mexico — and emergent regions, such as North Africa and the Middle East,” AlixPartners said in an August report.

“Those worries dampen efforts by North American companies that want to make use of Mexico’s developing infrastructure,” the firm said.

The Illinois-based Reshoring Initiative, which advocates for bringing manufacturing back to the United States, said it believed the United States is getting more reshoring than Mexico.

“As far as I can tell, there is more work coming back to the U.S. than to Mexico,” said Harry Moser, president and founder.

RI cited the AlixPartners report and a December 2015 study from the Boston Consulting Group, although that report suggested the U.S. and Mexico were more equal as destinations than the AlixPartners analysis.

BCG said that when evaluating where to put new manufacturing capacity to supply the U.S. market, the United States was first choice of 31 percent of senior manufacturing executives, with Mexico preferred by 29 percent.

Both countries rose modestly in that ranking since 2013, when they each were chosen by 26 percent of the respondents, while China dropped from 30 percent to 20 percent in those two years, BCG said.

“These findings underscore how significantly U.S. attitudes toward manufacturing in America seem to have swung in just a few years,” BCG said.

Moser said Mexico remained “absolutely an attractive destination” for some industries, particularly automobiles, and he argued that Mexico-U.S. links have advantages for the U.S. manufacturing industry as a whole compared with Asia, because of the high potential for back and forth shipment of components between the two countries before final manufacturing.

The average Mexican made manufactured good has 40 percent U.S. content, he said, compared with less than 10 percent for China-made goods.

Some sectors of Mexico’s manufacturing industry have grown quickly in recent years.

The country was the world’s 10th largest maker of automobiles in 2009, producing 1.6 million vehicles, but it became the seventh-largest in 2014, with its annual vehicle output more than doubling to 3.3 million, according to the International Organization of Motor Vehicle Manufacturers.

About 70 percent of Mexico’s light vehicle production is exported to the U.S. and Canada. In those five years, Mexico leapfrogged past France, Spain and Brazil in the rankings of the largest automobile manufacturing countries.

There’s a big need for imported plastic parts in Mexico: the Mexican Automotive Industry Association said that only $3.4 billion of the $9.8 billion demand in injection molded plastic parts in the auto industry is met with domestic demand.

While Mexico is growing as a production location, one of the reports said it lagged as a research and development spot compared to other emerging economies.

The Deloitte/MAPI report suggested that Mexico is mainly seen as a production location — companies reported that they were much more likely to put research and development work in China, the U.S. and India.

Compared to Mexico, the survey said companies were 11 times more likely to put R&D in the United States, eight times more likely in China and four times more likely in India.

While lagging in R&D, Mexico was the third-ranked destination in that survey for additional investment where companies already have manufacturing — behind China, the top spot, and the United States. India and Brazil were the fourth and fifth ranked destinations, respectively.