Southward Advisors

Firms and consumers across the globe have enjoyed the fruits of cheap Chinese raw material, labor, components and finished goods in their warehouses, store shelves and homes for over two decades. For most firms, the experience of manufacturing in China has been rather turnkey prior to the implementation of the United States’ 301 tariffs in 2018, COVID-19, the global logistics crisis, and the deterioration of relations between China and the West. The Chinese turkey manufacturing solution has always been one in which an entrepreneur or firm could simply go to China with an idea or even a simple prototype made in a 3D printer in Los Angeles or Houston and have initial production beginning within a matter of weeks or a few months. The Chinese have always been able to produce according to spec and volume needs “on-demand”.

Mexico’s manufacturing ecosystem behaves in no way as does its Chinese counterpart. The sourcing and supply chain development process in Mexico is one which requires, time, patience, in-person meetings and multiple rounds of bidding. Firms that attempt to come to Mexico and do things “The Chinese Way” or who expect Mexican factory owners to meet all their demands in an immediate and extemporaneous manner will fail. The reasons for the time and effort required for Mexican supply chain development are numerous and complex. They include:

  • Raw material procurement practices
  • Non-integrated supply chains
  • Mexican tax and labor law/lack of liquidity/access to credit within Mexican firms
  • Cultural differences

While Mexico’s manufacturing culture is different, many Mexican firms are beginning to Westernize their process of doing business with American importers. The process is slowly becoming more streamlined to align with at least some demands of Western firms. Mexico’s auto industry is nearly on par with its US and Canadian counterparts as the USMCA supply chains are some of the most sophisticated and integrated on earth. This process took over 20 years following the implementation of NAFTA in 1994. Other Mexican manufacturing industries will gradually modernize in their overall processes, culture and protocol as firms’ nearshoring appetite will only continue. With the right supply chain localization strategy, foreign firms can enjoy a plethora of success in souring from Mexico.