The U.S. has become equally attractive as Mexico to shippers looking to near-shore production, or shift manufacturing closer to the American consumption market, according to a global consulting firm.
Thirty-seven percent of the roughly 140 manufacturers surveyed this year named Mexico and the U.S. as the most attractive near-sourcing location, followed by Canada, at 7 percent; South America and the Caribbean, each at 5 percent; and Central America, at 9 percent, according to Alix Partners’ Supply Chain Partners. Mexico was the most attractive near-sourcing destination for 49 percent of surveyed manufacturers last year, while 37 percent of those surveyed chose the U.S.
Thirty-three percent of the surveyed manufacturers looking to near-source are either moving production or have already shifted operations in the last three years, according to the survey. Out of the same group, 42 percent are or are planning to save up to 5 percent on delivered costs. Thirty percent of manufacturers are seeing or expect landed cost savings in the 5 percent to 10 percent range, while 28 percent of surveyed shippers are enjoying or are anticipating savings in the 10 to 20 percent range.
Shippers’ outlook on Mexican security improvement has also brightened, according to the Alix Partners survey. Forty-six percent of manufacturers said this year they expect modest improvement, compared with 43 percent feeling the same way in 2012. Three percent of those surveyed this year expect dramatic improvement, while no respondents were that optimistic last year. The percentage of shippers that feel Mexican security is spiraling out of control fell from 4 percent to 1 percent in the same period.
China isn’t standng by and letting its manufacturing edge slip, Foster Finley, managing director of Alix Partners' Performance Improvement practice, said during a Friday conference call hosted by Stifel Nicolaus. China, which enjoys a robust labor force and expansive manufacturing capacity, has brought back its value-added tax rebate programs for products that had been phased out in 2008, he said. Beijing is exercising an aggressive monetary policy to control the strength of its currency and is working to keep domestic material costs low.
“Mexico does not have the level of sophistication that say China has, or Singapore has, in producing high-level electronics,” Finley said.
Near-sourcing has grown as transportation and Chinese labor costs have risen. Shippers’ push to keep inventories lower by shortening supply chains has also fueled the trend. But it’s unclear not only whether the trend will hold but also the total impact it will have on global supply chains. Boston Consulting Group said a widely publicized study that nearsouring will add 3 million North American jobs in several years, while a study by The Hackett Group suggest the job gains will barely offset the loss of U.S. manufacturing jobs to outsourcing.
"This is a multiyear trend," Finley said. “We are seeing the first several innings of a long-term trend."
A flare-up in the drug war, however, could threaten the near-sourcing trend in Mexico. He noted that maquildaoras, or Mexican manufacturers that produce for the U.S. market, are shifting production away from the border to areas, such as Monterrey and Durango. Labor conditions and security tend to be better farther from the U.S.-Mexico border, Finley said.