Over the past few years, one of the best ways for companies to save money was to outsource jobs to nations where labor was cheap. This usually meant sending jobs to Asia or countries just developing. There are a lot of costs associated with producing and importing goods from Asia. Not only are there freight costs, but the labor is difficult to manage as well.
There are several companies looking to bring those jobs back to North America. With all of the great options that are available today in Mexico, this makes a lot of financial sense. There are advantages and disadvantages to outsourcing in Mexico.
Advantages of Outsourcing in Mexico
Mexico is a growing nation with a lot to offer people who live and work there. Companies from the United States are able to visit factories and interact with business leaders there much easier than Asia. Here are some of the biggest reasons to consider outsourcing in this area.
Without a doubt, the biggest reason to outsource labor and production is the cost of goods. Not only does it save on labor, but a lot of materials are less expensive in Mexico as well. Over time, doing business in Mexico can increase a company’s profits immensely. Outsourcing in Mexico does provide a lot of challenges, but the cost savings makes all of the effort worth it for companies that are trying to improve financially.
Mexico is much closer than China to the United States. Although that sounds obvious, it is a fact that many people never consider. This means that the shipping and freight costs from Mexico will be much less than importing something from Asia.
Many products from Asia cost more to import than the actual cost of the product. If you value providing high-quality products at a low price, this is a great way to make healthy margins on your end as well. Outsourcing in Mexico is much easier over than places in Asia.
There are many reports of labor issues in Asia with developing nations. Although it has gotten better in recent years, some companies are still wary of doing too much business in this area. Over the next few years, there are a lot of people who are excited about all of the improved transparency in Mexico taking place.
The nation is working to become a manufacturing powerhouse, and improving working conditions for its people is one of the biggest reasons why they are making strides in this area.
Not only is shipping products cheaper from Mexico, but the lead time is much less as well. Buying products directly from a factory in Asia may take three or four months to come in. With buying something from a factory in Mexico, you can usually have the goods in your warehouse within 30 days or so. This is a huge difference and allows companies to have much less total inventory in their supply chain. Over time, this greatly improves inventory turns in the business. This is just one of the many reasons to consider outsourcing in Mexico versus other places around the world.
Disadvantages of Outsourcing in Mexico
Like anything in business, there are some disadvantages to taking this strategy as well. Mexico outsourcing is a great way to save money, but there are some things that companies need to understand before making a final decision.
With all of the economic growth in Mexico, a lot of the production factories are new. While these factories have a lot of new technology, they also do not have a lot of history dealing with factory audits. Many companies in the United States require certain factory scores when it comes to doing business overseas. There have been issues with factories failing in Mexico and American companies having to scramble to find a replacement in a short period of time.
Like any nation, there is some corruption at high levels of government in Mexico. The business culture of Mexico is one that embraces this at some level. Companies in the United States are generally not used to dealing with this type of business behavior. If you are new to Mexico or nearshore outsourcing, this is a culture shift that your business will have to get accustomed to.
Some companies are focused on improving the environment through their work in business. The factories in Mexico generally do not have to abide by the same cleanliness standards that production areas in the United States do. If you are importing any product from overseas, this is a consideration that you have to make. Mexico is improving in this area, but the factories there are still well behind what is happening in the United States.
Finally, there is an uneasy political environment in the United States right now. The President is focused on bringing jobs back to the United States. Not only that, but he has repeatedly talked about Mexico stealing away jobs from the United States.
Any public company takes a big risk when moving American jobs to other countries right now. This is especially true in Mexico. There are advantages of outsourcing to Mexico, but you need to consider all of the disadvantages as well. Over time, many companies have made the shift successfully with moving jobs from Asia or the United States to this area.
As a business owner, you have to look at all of the facts and make the best decision for your business. There are many people today who are stressed with the current political environment that we live in. Not only that, but companies are more stretched financially than ever before.
Whatever you end up deciding in your business, looking at the disadvantages of outsourcing to Mexico is important too. Outsourcing in Mexico is a way to save money, but there are some costs in that equation as well that need to be considered.