CSCMP's Supply Chain Quarterly
October 17, 2018
Forward Thinking

Mexico is tops in Latin America for "near shoring"

In a recent study, Mexico's interior beat out four other locations as a cost-effective spot for light manufacturing near the United States and Canada.

What's the best place in Latin America to set up a light manufacturing operation in close proximity to U.S. and Canadian markets? When labor costs, transportation, workforce education, and other relevant factors are considered, Mexico's interior offers the best option among four Latin American countries, according to a study by the Entrada Group.

The Entrada Group, a consulting firm specializing in offshore manufacturing, particularly in Mexico, examined the total cost of setting up a semi-automated, light manufacturing operation shipping finished goods to the United States from Honduras, Nicaragua, Costa Rica, and Mexico. For the purpose of the study, the research assumed a manufacturing facility of 70,000 square feet that also included warehousing and administrative space. The hypothetical plant employed 400 workers in two shifts and 90 "indirect" employees like managers and maintenance staff. The scenario also assumed that 80 percent of the raw materials would be shipped from the Southeastern United States, and that finished goods would be sent back to that same region.

In Mexico, the study looked at a U.S. border location and one in the country's central region. The latter ranked number one, in part because labor costs in Mexico's interior are less than those in the border region. The border area, which ranked second, enjoyed lower transportation costs, however.

Honduras ranked third. Its labor costs were less than that of the Mexican border area but still higher than in Mexico's interior. The study noted that the country's port of Puerto Cortes provided an excellent transit gateway for nearshoring.

Costa Rica ranked next to last in the study, in part due to its high transportation costs and the highest labor costs among the four countries. The country did get high marks for political stability, a highly educated workforce, and the quality of its infrastructure.

Nicaragua scored last, mostly due to the logistical challenges of operating a manufacturing facility in that country. In addition, raw materials, components, and finished goods would have to move via Puerto Cortes, traveling through Honduras to and from the factory in Nicaragua.

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