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- May 16, 2013 -

 
     
 

Supply Chain Graphic of the Week: Mexican versus Chinese Manufacturing Wages

 

Huge Cost Advantage China Once Had is Gone in a Decade; Will Mexico be Able to Take Advantage?

 
     
 

By SCDigest Editorial Staff

 
 

 

We've reported on this before, but we were still interested to see this recent graphic from the analysts at Morgan Stanley on the comparative manufacturing wage rates of China versus Mexico over time.

From our view, it is astounding to see the gap between higher Mexican wages in 2002 - more than three times the wages in China just 10 years ago - to the near parity today.

 

 

 

How that condition has been reached is obvious from the chart- wages in China have risen rapidly over the past decade, while those in Mexico have been stagnant (though, we will note, rising lately, though still not as fast as China's).

 

This chart, however, does not show productivity levels, which have to be considered to get a true labor cost comparison. But the trend seems to bode well for Mexico as an "nearshore" location for US companies versus the long offhore supply chain from China's factories.

 

Morgan Stanley's Manoj Pradhan and Jonathan Garner say in a research note that "Mexico is the clear likely beneficiary [from these changing wage levels] for three reasons:(1) recent outperformance on competitive grounds – it has gained market share in the US and automobile production remains an indirect threat to other less efficient LatAm manufacturers; (2) Mexico has always been strongly plugged in to the US manufacturing cycle and should remain a key part of the supply chain, thanks to NAFTA; and (3) Mexico’s structural reforms are likely to reduce structural rigidities at the same time as the tailwinds outlined above kick in."

 

That makes sense to us - now if the country could only improve its logistics infrastucture and crime rates...


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