Shipping Considerations Outweigh Labor Costs When Compared To China

Cessna is nearing completion on its fourth expansion in the Mexican city of Chihuahua, which will increase the size of it's factory there 10 fold over it's original floor space.

Part of the reason for the expansion in Mexico is that China's labor costs have risen to a level that is only about 14 percent below Mexican wages, though a Chinese worker in a factory still makes less than $2 per hour, according to Bloomberg News. Cessna CEO Jack Pelton said that when the lower cost of shipping to and from Mexico, rather than overseas to China, is added to the salary piece of the equation, the balance is tipped to its plant in Chihuahua.

There are other factors as well. U.S. companies overall say they like that there are cultural similarities between the U.S. and Mexico, and that there are fewer labor issues at Mexican plants than at Chinese facilities. They also say that most Mexican executives and middle managers are able to speak English, which helps communications.

Mexican officials said its manufacturing sector is likely to be the engine that drives its economy for the next several years. They say oil exports have dropped dramatically, and that tourism and consumer purchases are struggling with little expectation of recovering in the near term. But in the wake of NAFTA, enacted in 1994, the country has made trade agreements with over 30 nations including members of the EU, Japan, and Israel. The Mexican government says the aerospace industrial sector in Mexico employs more than 20,000 workers in 186 companies in the manufacturing, services and design engineering areas, as well as MRO.

FMI: www.cessna.com, www.economia.gob.mx/swb/swb/