What are the costs of manufacturing in Mexico in 2021?

AMJan21Features - Ivemsa2
AMJan21Features - Ivemsa2

Sergio Tagliapietra, CEO of IVEMSA examines cost factors, including inflation, facilities, and labour rates, for companies to consider when setting up manufacturing in Mexico.

 

The uncertainty of 2020 has left a lingering doubt in people’s minds about how to move forward and continue proceeding with “business as usual.” No one could’ve predicted a pandemic that stunted the global economy in such a dramatic way. However, with a new year comes new resolve and many companies are resuming initial plans of manufacturing in Mexico.

One of the main reasons why US and other foreign manufacturers look to Mexico as a place to expand operations is costs. In general, operational, facility, and labour costs are consistently less when compared to other global markets and will continue to trend this way in 2021 and beyond.

Inflation forecasts and the valuation of the Peso

Sergio Tagliapietra, CEO of IVEMSA

Inflation in Mexico typically holds steady at 4% to 5% annually, which helps manufacturers since this inflation is pretty consistent year over year. By knowing this, manufacturers can plan on salaries and other costs when operating in Mexico. Over the next decade, forecasts show the inflation in Mexico trending closer to the 4% mark and below.

Additionally, the Mexican peso has depreciated to 19.8 per US dollar, which exceeds the previous 10-month high of 19.6. The forecast shows an estimated depreciation of the peso to increase approximately 4.93% every year for a potential 25% total increase within the next five years. This will help manufacturers offset the impact of the inflation they could have in Mexico and will keep them competitive.

Facility costs and availability throughout Mexico

US companies have a successful history of manufacturing in Mexico. A big part of their success is the access to competitive real estate costs and the availability of Class A industrial buildings for manufacturing. However, facility costs are determined by the city chosen for setup.

For example, a Class A building in Tijuana ranges from $0.57 to $0.60 per square feet per month, while in Monterrey, a Class A building with a similar building layout costs $0.45 per square foot per month. And, costs for the same categorized building in Mexicali, Guanajuato, or Queretaro reduces the price per square foot to $0.42. These are the asking prices set by landlords in these areas but can be negotiated. As an added value, IVEMSA can provide expertise and guidance when it comes to negotiation during the site selection process.

A typical Class A basic shell building includes a basic fire prevention system and 5% office space, as well as other general amenities and systems necessary for operations. IVEMSA offers a site selection analysis to compare regions, facilities, and characteristics to meet each manufacturer’s unique parameters.

Mexico labour rates among a competitive workforce

Labour costs also vary by region as well as the type of positions needed. Generally speaking, the cost of labour in Mexico has remained steady, increasing incrementally from $4.66 to $4.82 USD from 2019 to 2020, while China increased its manufacturing labour costs from $5.78 to $6.40 USD during the same time period.

Depending on level of expertise and experience, Mexico labour rates range from $4.13 hourly cost for a non-skilled operator, all the way up to a production manager, which calls for an hourly rate of $34.61. These are fully burdened salaries that include federal taxes, state tax, mandatory benefits, and market benefits.

IVEMSA can help create a specific HR plan that details fully burdened salary costs once you have a list of roles and requirements for your project. This provides an accurate picture of what an hourly rate of pay looks like, in addition to mandatory benefits, competitive market benefits, and state and federal taxes. Knowing fully burdened salary costs allows manufacturers to make more informed decisions regarding budgets and hiring needs.

Cost-effectiveness has always been one of the biggest allures when considering Mexico manufacturing solutions. With economic forecasts and facility and labour rates trending favourably over the next several years, it provides a sense of confidence for manufacturers that want to move forward with their expansion plans in 2021 and beyond.

https://www.ivemsa.com

https://tradingeconomics.com/mexico

 

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