Everyone is talking about Mexico these days, but not because of the sandy beaches and margaritas. Electronics OEMs and EMS companies are looking outside of China for a more sustainable location to produce electronics. These days, Mexico is looking like a prime location for electronics manufacturing at scale, even if we have some of the most advanced capabilities remaining in Taiwan.
There are many reasons one can use to justify investment in Mexico versus some other location in Southeast Asia or full onshoring back to the US and Europe. In short, Mexico has the workforce, optimal location, and industrial base needed to support nearshoring. Despite these advantageous factors, there are still cultural barriers to overcome in order for nearshoring to Mexico to be successful.
The New Trend is Nearshoring
There are many factors driving the move in manufacturing away from China. In some ways, China has created this move artificially through their zero COVID policy, while in other ways the suppression of worker wages is no longer a tenable path forward. As China attempts to transition to a consumption-based economy, cost-effective volume manufacturing opportunities may continue to dwindle. This is driving companies to look at places like Mexico for production of electronics.
Mexico PCB Production Advantages
Mexico’s electronics manufacturing base is not as mature as in China, and the country still does not contain a complete supply chain for all the parts needed in a new product. Unfortunately, these parts would still have to be imported into Mexico before assembly into a PCBA. As the Mexican economy and supply chains mature, this situation may change.
However, the country does boast a skilled workforce with experience working for American OEMs, and there are many reasons to consider a new production operation in Mexico:
- Quality control experience - Many Mexican managers have come from the automotive industry and other American OEM operations, and these companies enforce strict quality control requirements. Many managers are trained to Six-Sigma black belt standards and can lead quality control.
- Close to the US - There is a lot of Mexican production close to the boarder, so it is easy to ship products directly to logistics centers in the US. Some distribution centers are within driving distance.
- Close to two oceans - There are two options for shipping from Mexico on both coasts, which offers access directly to Europe and Asia. This reduces freight shipping costs compared to production in China.
China PCB Production Advantages
Although China is now seen as a supply chain risk, production in China still has many advantages, both for medium-sized and large producers. China’s skilled labor force, particularly in electronics production, will continue to make the country a viable option for electronics production. Some of the major advantages include:
- Complete supply chain - It’s possible to source every single part for a product inside China, and sometimes at a single factory. This includes product packaging and freight services.
- Advanced capabilities at volume - Some products require advanced capabilities like HDI buildups. China offers these at volume with similar quality and lower price compared to Japan or Korea.
- Close to major shipping routes - Although not close to end markets, China is still close to the Strait of Malacca, one of the most trafficked lanes in the world offering a route to Europe. There is also wide-open access to the Pacific Ocean for shipping to North America.
Beyond China and Mexico
Although Mexico is at the top of everyone’s list for nearshored manufacturing, there are some other locations where large companies are setting up production capacity for semiconductors, PCBs, PCBAs, and components. The top two locations to produce outside of China and Mexico, which are also receiving investment from tier 1’s and OEMs, are Vietnam and India.
Both countries offer an attractive option for a captive production operation or an EMS operation. The main motivation here is due to the technical skills of the population and the lower labor cost compared to China. However, the logistics and geopolitical challenges will still exist when producing in this reason. Quality control could also be questionable as higher-level management may not have the QC experience found in Mexico. These are some of the many factors that will continue to drive investment in overseas manufacturing for electronics.
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