The Critical Startup Question: Is Working With Mexico Worth It?
Working with Mexico is controversial, but there is a myth that Mexican manufacturing growth is entirely bad for the United States. Manufacturing in Mexico has concrete implications for American workers, but not in the way one might immediately think. According to the Los Angeles Times, which investigated the growth of manufacturing in Mexico and it’s impact on US labor, found that Mexico needs the US to grow. It turns out that the supply chain requires US goods to function.
Mexico shelter companies have become a critical question for startups. Clothing manufacturers, for instance, have several choices of where to do business and how to control costs. With manufacturing and potential cost savings, is working South of the border really worth it?
Con: Shaky Ground
One major con is the regulatory environment in both the US and Mexico. The costs of manufacturing in China are comparable to Mexico, but Mexico is very tempting because the shipment of goods produced is significantly lower priced. You pay less for manufacturing, and for the goods to get to store shelves.
That said, regulation depends on political climate. The current administration has spoken of tossing NAFTA out the window, which would significantly impact the cost of imports from Mexico. Mexico could retaliate, or maybe not. Maybe NAFTA will stand. The point is that you don’t know, and that uncertainty can make any business owner anxious.
Con: Image Problems
For larger and mid-sized companies, moving manufacturing to Mexico can mean closing operations in the United States. Some companies have found ways to compromise by partially moving factories, or relocating certain operations, but the fact remains jobs will be lost. Smaller startups have the advantage of using the cost efficiency to launch on lean budget, but mid-sized companies can really feel the sting of a negative PR campaign.
The first pro to look at is the cost of doing business in Mexico. You pay less to import, and less in labor costs, but you still get a decent quality product. When you place an order from China, you might feel committed to order in bulk. This can lower shipping costs for you, but it leaves you on the hook to sell product. If you’re a new startup, breaking into uncharted waters and offering a product no one has ever built before, then you’re essentially shouldering a great deal of risk to try and lower your short term costs. Mexican manufacturing is better for on-demand style operations, which prefer to keep as little stock on hand as possible, and operate cost efficiently.
Pro: Executive Burnout
When you have your top management working with people overseas, you’re working in two separate time zones. When does anyone have time to sleep? Sleep may be overrated in the business world, but it’s necessary to function at peak performance. Working with Mexican companies means working in the same time zone.
Pro: Supply Chain
The final pro is perhaps most important for a retailer: your supply chain is fast and agile when you work with a partner so close to you. If you send your orders to a Chinese manufacturer, and your shipment is delayed, or you can’t clear customs, it could be months before your product can be sold. Not only are tariffs low importing from Mexico, the supply chain can quickly adjust to fluctuations in customer’s ordering habits.
Working with Mexican companies provides a strong supply chain that, while it may be reliant on regulation, represents a better alternative than the risks of coordinating manufacture overseas.