S.O.B: China Retreats From Mexico
Think the US is drowning in cheap Chinese goods? Think again. Production is rapidly going South. According to corporate consultant AlixPartners, Mexico has leapfrogged China to be ranked as the cheapest country in the world for companies looking to manufacture products for the U.S. market. India is now No. 2, followed by China and then Brazil.
A number of Chinese car manufacturers have tried to use NAFTA’s soft underbelly as an entry into North America. Zhongxing, FAW, Geely, ChangAn and more announced plans to Hecho en México. One by one, they have been shelving the plans. Cheap production is one thing. Lack of customers another. This summer, FAW cancelled plans for a Mexican manufacturing plant. Before, Geely and Zhongxing had said “bu hao” and packed up.
China’s ChangAn was thought to have the most robust stomach for Mexican food. Looks like they also lost their appetite.
ChangAn Automobile Group, China’s No. 3 automaker, said to Reuters that it had slowed down plans to set up a Mexican plant. .”We are still doing market research there. There won’t be any big investment for the time being,” Zhu Huarong, head of Changan’s research and development division, told the wire service.
ChangAn is keeping the doors open, just in case the market turns around. Yet, it probably makes more sense to focus on the booming home market in China than on the graveyard a.k.a. North America.
Bertel Schmitt comes back to journalism after taking a 35 year break in advertising and marketing. He ran and owned advertising agencies in Duesseldorf, Germany, and New York City. Volkswagen A.G. was Bertel's most important corporate account. Schmitt's advertising and marketing career touched many corners of the industry with a special focus on automotive products and services. Since 2004, he lives in Japan and China with his wife <a href="http://www.tomokoandbertel.com"> Tomoko </a>. Bertel Schmitt is a founding board member of the <a href="http://www.offshoresuperseries.com"> Offshore Super Series </a>, an American offshore powerboat racing organization. He is co-owner of the racing team Typhoon.
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Just between the security issues and the government bureaucracy issues alone, it is difficult to do business in Mexico.
My friends who have tried doing business in Mexico have said that the hidden costs of required payoffs generally negated any theoretical cost advantages. Mexico has hardly displaced China as a source of cheap manufactured good. http://www.census.gov/foreign-trade/balance/c2010.html#2009
For 2009, the US had total imports from Mexico worth $125B and exports to Mexico worth $92.5B. Crude oil is the #1 import from Mexico to the US at about 1/3 of that $125B. In that same year, US imports from China were $212.8B while US exports to China were a measly $47B. The vast majority of the US' imports from China are manufactured goods. http://www.census.gov/foreign-trade/balance/c5700.html#2009
US trade imbalance with Mexico: $-32.5B
US trade imbalance with China: $-165.8B
Too bad the USA can not send Mexico's citizen's medical bills accrued in the USA to Mexico for payment, along with the enormous incarceration costs and the many other costs from the many benefits so easily attained via phohy identification.