Companies across the globe, and especially in the U.S., are beginning to reconsider the geographic footprint of their manufacturing operations. Geopolitical factors, transportation costs, and narrowing of the labor cost divide make localization more advantageous than in the past. The trend is even more visible in new product introduction (NPI), where proximity to engineering resources and customers is an added benefit. Asian manufacturing is highly-capable and cost-effective, making it part of many effective global sourcing strategies, but diversifying production into North America is often an attractive option.
In the past, many organizations seeking near-shore manufacturing in North America defaulted to selecting Mexico, and we see this trend continuing today. Mexico has long offered inexpensive, high-quality talent, reasonable tariffs, and predictable ease of doing business. The North American Free Trade Agreement (NAFTA) and its successor, the United States-Mexico-Canada Agreement (USMCA), solidified Mexico’s position as a manufacturing powerhouse supplying the U.S. market. The assumption was that U.S.-based electronics manufacturing was reserved for defense and a handful of other highly-regulated, price-insensitive markets.
Today, more and more companies are considering U.S. manufacturing for NPI or capacity expansion. Many will find that the U.S. is a better choice depending on the following factors:
- Direct labor requirements and narrowing labor cost gap
- Simplification of operations
- Transportation costs and delivery times
- Customer preferences for U.S.-made products
How should a company considering reshoring weigh these considerations?
Labor rates and automation
The U.S. and Mexico are relatively equal in terms of technical skills and capabilities around manufacturing. Labor costs have long been a primary driver for OEMs choosing Mexico over the U.S. because labor costs have been far lower historically. However, the labor cost gap is narrower than it used to be as Mexican manufacturing matures and labor costs rise. Depending on the type of product and level of automation employed, the labor rate may no longer be a determining factor.
Companies should look at the impact of the labor cost difference as part of the overall value calculation. In situations where the manufacturing process requires less direct labor due to automated processes and limited test time, such as SMT or PCBA manufacturing, the impact on the overall cost of ownership may be minor. The wage difference will more significantly impact a product requiring more direct labor, and in this case, companies may still benefit from moving this type of work to Mexico.
Simplification of Operations
Both the U.S. and Mexico offer convenient ease of doing business for manufacturing. However, a U.S. company or company with a U.S. presence will avoid some legal leg work by keeping manufacturing closer to their other operations. It is worth noting that this difference is less important when using a Mexican location of a U.S.-based contract manufacturing partner that handles much of the paperwork. But there is always some advantage to skipping translation requirements and exposure to an additional legal environment.
In the product development process, leveraging U.S. manufacturing does make it easier for U.S.-based product management and engineering teams to visit manufacturing sites in-person on short notice. For example, many of Benchmark's customers in California easily take day trips to our manufacturing sites in California and Arizona to meet with manufacturing teams. Choosing a U.S. manufacturing site a short distance from your facilities may be possible depending on the product's requirements.
Transportation and Delivery
Another advantage of U.S. manufacturing is expedited product delivery to most locations. Although most goods that transfer across the U.S. border from Mexico are tax and duty-free, there is still a time and documentation burden to consider. For instance, shipping from our Guadalajara facility typically takes three days to reach the U.S. border by ground (standard shipping rates). These extra days in transit must be considered when factoring in inventory and transportation costs since the cost of inventory in transit is a factor on a balance sheet. Companies looking to reduce their carbon footprint also benefit from reduced shipping distances if most end-consumers of a product are in the U.S.
Consumer-- and Government-- Preferences for Made in the U.S.A.
Both individual consumers and the U.S. Government value U.S.-made products in terms of job creation and the environmental impact of shortened transportation distances. A "made in the U.S.A." label can be a significant differentiator for a company looking to position a product as premium. The U.S. Government has given various preferences to U.S.-made products in procurement and grant purchases for nearly 100 years. For instance, reinforcement and expansion of the Buy America(n) Acts are creating significant incentives for American manufacturers to produce more products in the U.S. rather than off- or near-shoring production.
North American manufacturing is growing, and Mexico and the U.S. present strong cases. It is critical to review the finer points of your project to ensure that you are choosing the right location for your production. The case for manufacturing in the U.S. is strengthening, and in many cases, it might make the most sense for your North American relocation.
To learn more about Benchmark facilities and our diverse offerings in both the U.S. and Mexico, visit our locations page at https://www.bench.com/worldwide-locations.