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As China’s wages climb, Mexico stands to win new manufacturing business

By Tim Johnson, McClatchy Newspapers –

MEXICO CITY — Not long ago, Mexican factories couldn’t compete with the “China price,” the ridiculously low cost of production in the Asian nation.

But sometime this year, with rock-bottom wages now soaring in China, the average cost of factory labor in the two nations will be roughly the same. This is a boon to Mexico, and its industrial parks are swelling.

The trend has caught the attention of chief executives such as Rob Moser, the president of Casabella Holdings, who recently started totting up the pros and cons of where to make the housewares that his New York firm designs and sells.

China had been cheap — really cheap — when he first started buying there in 2003. But labor costs have climbed at a double-digit pace, and there were other factors that made China less convenient.

“You’ve got to get a visa to China, and that takes time. It’s a 16-hour flight, hours to the factory. It’s days at the very least to tackle some of these issues,” he said, referring to production problems that invariably arise.

“You literally can be in a facility in Mexico the same day and be fixing things. That is a huge benefit,” Moser said.

So like a number of U.S. and Canadian businesses — large and small — Casabella decided this year to bring some of its business back to North America, specifically to Mexico, the United States’ third-largest trade partner, after China and Canada.

Mexico’s charms look more attractive than ever to global supply-chain managers. Eclipsed in the past decade by the white-hot industrial juggernaut in China, and marred by an image of rampant criminality, Mexico is again seducing global business, drawing billions of dollars in investment.

The Boston Consulting Group, a major business strategy consultancy, says average factory wages in China this year have hit about $4.50 an hour — including benefits and other costs — and are likely to climb to $6 an hour by 2015. Mexico’s National Statistics Institute says average manufacturing wages stood at $3.50 an hour in June, the most recent month tallied, but that figure doesn’t include benefits.

Yet to be seen, though, is whether Mexico can follow China’s path and leverage its low-wage status into sustainable fast growth. To do so, it needs policies to foster small and medium businesses and move them into higher-end production, and to draw workers into the formal economy and push them up the economic ladder. Some analysts have doubts.

Moser, the 61-year-old Casabella president, said he’d been warily eyeing the prices of his suppliers in the Pearl River Delta and elsewhere in China.

“The clear cost advantage that these factories had in 2004, ’05, ’06, ’07 and probably up to ’08 and ’09, where it was material, it was significant: that gap is virtually nil,” Moser said.

So earlier this year, Moser worked through Ed Juline, an American consultant in Guadalajara, and found a factory in Mexico City that could meet his specifications for a molded dish brush. He’ll take delivery on the first order perhaps late this month.

He expects that in five years, half of his suppliers will be outside China and that Mexico is “certainly the most logical place.”

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