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Manufacturers Say "Adios" to Chinese Factories

Wednesday March 27, 2013

With the Chinese currency, the yuan, rising in value, cost of doing business in is China also rising quickly, forcing many companies to relocate manufacturing back to Mexico. Shipping costs have also risen, making the move to Mexico more appealing, especially to companies with primary markets located in the Western Hemisphere.

This week, the Mexican peso rose hope for the their economic prospects after an unexpected rate cut last week, overall the peso has risen 2.8% so far in 2013. Enrique Pena Nieto, the recently installed president has promised the Mexican population many changes, especially for their tax system. Most notable, is his plan to reform its government-run energy sector to attract outside investment and business from other countries, predominantly the USA.

According to the International Monetary Fund, a decade ago, wages in Mexico were six times higher, yet only 40% higher than pay in China in 2011. "Mexico is a stable country, close by, but unfortunately with cheap wages," says Eduardo Garcia, publisher of online business journal Sentido Comm.

The current rise in manufacturing, about 20% of Mexico's GDP, is what drives their economy, they expect to see it expand by 3.5% in 2013 alone. On the other hand, and other side of the world, Chinese factories have increasing value and manufacturers are showing less interest in handling smaller orders, says Mike Rosales, owner of Marvel, a Los Angeles-based company which manufactures small toys and trinkets in China and Mexico.

Rosales also adds, shipping costs jumped for Marvel when oil prices reached $100 a barrel, and the lack of protection for intellectual and industrial property in China became a huge problem. "The would ship your product out the front and your product with someone else's name out the back," he says.

There are many arguable reasons to move manufacturing to Mexico. First of all, Mexico is part of more than 40 trade agreements, which tends to reduce costs even further. Doing business in China means dealing with the time change, and very distant location. These factors can cause many midnight telephone conferences and extremely long and expensive flights across the world. Some also say, increased numbers of manufacturers in Mexico benefits U.S. businesses by offering suppliers on both sides of the border. "Mexican business has increased from 1% to 10% of total sales over the past ten years," says Jim Raptes, custom sales manager at Deco Products, who make zinc castings in Iowa. He goes on to say, "security remains a concern in Mexico, but the violence due to the drug wars, has given few companies pause about coming south, executives won't travel to Mexico, but the Americans who do come down here secretly love it."


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