China were a mere US$1.74, according to the Bureau of Labor Statistics. But by 2016, labor costs in China were only 4% behind U.S. workers, according to Oxford Economics. Whatever savings are realized from overseas procurement risk getting wiped out by production delays or transportation costs. “Low-cost country sourcing doesn’t mean paying the lowest price overall,” says Wendy Tate, professor of supply chain management at the University of Tennessee-Knoxville Haslam College of Business. Diversi cation is one way to recoup some of the expenses. India, Vietnam, and Mexico have emerged as the lowest- cost countries that American businesses are currently sourcing from, according to The Reshoring Institute. It’s important to consider the whole picture when deciding where to build a facility—labor costs matter, but so do distance, political stability, and worker productivity. “There’s lead time to factor in, there’s inventory to nance, there are all kinds of customs and tariffs according to where a product is coming from,” says Tanguy Caillet, senior vice president of global industry solutions at o9 Solutions, a nancial planning platform. “The unit cost could be cheaper coming from Asia, but Mexico might have lower associated tariffs because of the USMCA,” he says. A MANUFACTURING HOMERUN Some companies are taking it one step further by moving their supply chains as close to home as possible. A few have even begun reshoring—relocating some operations to North America. In the 2021 State of North American Manufacturing Report , 83% of manufacturers told Thomasnet.com they are either “likely” or “extremely likely” to reshore by adding North American suppliers to the mix. And 41% of polled manufacturing executives have reshored at least some of their operations within the past three years, nds a 2021 Kearney survey.
MEXICO DELIVERS THE GOODS Unrest, delays, and exorbitant prices have sent some companies hunting for manufacturing locations outside of Asia. An increasingly popular alternative is Mexico. Annual foreign direct investment rose by nearly one-third in the first nine months of 2022, according to the country’s Economy Ministry. “Nearshoring is a cool buzzword right now, but we are seeing it happen,” says Jay Gerard, head of customs at Nuvocargo, a digital platform that facilitates trade between the United States and Mexico. “A lot of producers that have always shipped out of Asia are looking to diversify.” There are a few reasons for this, Gerard explains. The first is proximity. Relocating to Mexico enables companies to bypass some of the shipping costs and bottlenecks that characterized 2020 and 2021. Another element is labor costs. According to NAPS International, a compliance management services provider, wages in Mexico averaged $3.95 per hour in 2019, compared to $4.50 in China. Finally, legislative cooperation between the two countries is incentivizing some manufacturers to set up shop just below the United States’ southern border. The United States-Mexico-Canada Agreement, which replaced NAFTA in 2020, helps companies avoid the Section 301 taris, and other duties associated with Chinese manufacturing. Similarly, the IMMEX program, developed by the Mexican government, creates a mechanism to import raw materials duty-free. Finally, B-1 visas facilitate smoother transportation into the United States for Mexican truck drivers. As more–and more advanced–production facilities are built in Mexico, it’s supporting the country’s growing infrastructure development. For example, in mid-2022, Mexico’s government revealed plans to invest US$38.6 billion on 15 rail infrastructure projects. It’s a virtuous, upward cycle.
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