In recent years, Mexico has faced increased competition in world markets from China and other Asian countries. Mexico’s contribution to US imports peaked at about 12% in 2003 but has since fallen to around 10%. Chinese imports to the USA overtook Mexican imports in 2003 and now account for 15% of the total market.
According to Mexico’s central bank, Mexico’s lost market share between 2001 and 2005 was worth $27 billion, equivalent to 15% of all non-petroleum exports. Some multinationals closed their assembly facilities in Mexico and moved them to China.
What are China’s advantages?
The two most important ones are wage rates and the much larger local market. The average hourly wage for manufacturing in China is $0.66, compared to $2.13 in Mexico. China also offers more incentives for foreign investment. The companies that have moved are manufacturers of textiles, electronic items and auto-parts; these footloose industries do not have complex and expensive plants (unlike steelworks and chemical plants for example) and can therefore relocate relatively easily. While most have relocated in China, some have preferred South Korea or India.
What are Mexico’s comparative advantages over China?
Mexico’s major advantage is proximity to the US market. Shipping a standard 40-foot container from Mexico to the USA costs less than half the cost from China. Mexico also has a more educated workforce, with about one-quarter of the population having completed secondary education, compared to less than 17% in China. The productivity of Mexico’s workforce is slightly higher than in China, and the country also retains a slight edge over China in terms of its legal system. In an effort to stem the outflow of jobs, the Mexican government has opened several high-tech industrial parks, such as Silicon Border in Mexicali, and these appear to be having some success.
[Excerpt from chapter 20 of Geo-Mexico: the geography and dynamics of modern Mexico.]