Background
The great advantage for the North American participant is proximity.
We can ship an order door-to-door via FTL to arrive within a week;
One can take an early flight from USA to Mexico, hold a meeting, have lunch, and return to sleep in your own bed!
Try that round-trip to China!
- The USA was the World Industrial Power during much of the 20th century;
- Following World War II, within the reconstruction stage, the USA empowered Japan which was then a source of low-cost reliable labor; (>USD$.05/hour)
- Louis Marx “Toy King” was quoted in 1945 as saying that “…the Japanese are clever people; if we provide them with the technology and wherewithal, they can produce.”;
- Marx Toys pioneered toy production in Japan 1945;
- The rule of Supply vs. Demand dominates;
- Japan prospered, within a decade, the labor shortage dried up the “cheap labor”; the new industrialists became financiers and investors;
- As rates increased with Japan’s prosperity, in 1952, Louis Marx; Marx Toys pioneered toy manufacturing (Elm Tool) in Hong Kong;
- Manufacturing began to shift to Hong Kong where it was possible to obtain labor at approximately 90 – 95% lower than the comparable cost in the USA;
- Hong Kong prospered creating a new class of wealthy Chinese living under the British Protectorate; Hong Kong became industrialists, investors and financiers.
- The 60s and 70s saw production shift to Taiwan; again, creating prosperity;
- South Korea got into the act: “Made in South Korea”.
- Singapore went through the same process in the garment and other industries to become a world financial center; each followed “poverty to prosperity pattern”.
- During the 1980s China Mainland opened their doors to the most abundant labor supply in the world; the Chinese have excellent work ethic and reliability;
- “American Plastic Equipment, Inc.” contracted by the Chinese government built the “first” toy factory with used machinery from Ideal Toy Corp. of Newark, N J and tooling and Intellectual Property Rights of Marx Toys crowned by state-of-the-art plastic industrial technology courtesy of New York University in Qing Dao;
- During these last three decades, as China became the “world’s factory”, we have seen the labor in China become scarce while the cost of labor, overhead and production have skyrocketed. The days of cheap Chinese production are over!
- Under Jay’s theory, “One!” eventually we will all be the same on a global basis;
- However, in the meanwhile, there is still opportunity in the arbitrage of labor;
- The timing is right for the source to shift again;
- The general population is now reluctant or resistant to “Made in China”;
- The USA is still the world’s largest market;
- Canada, the closest neighbor to the north, is also a good consuming nation with similar language and culture;
- Mexico is the closest neighbor to USA and Canada;
- Mexico, USA and Canada, all in North America and make up (NAFTA) USMCA;
- While the USA and Canada enjoy substantially high Standards of Living;
- 40% of the Mexican population is at poverty level;
- 20% of the Mexican population live on USD$5.oo per day or less!
- In contrast, one of the world’s richest persons lives in Mexico;
- Due to the compensation differences, many Mexican citizens cross the border to the USA as illegal immigrants in search of economic opportunity;
- The illegal immigrants compete with US citizens for work in USA;
- The Mexican worker earns less than the US citizen;
- As a contrast, the same goods sold in Mexico may cost 50% higher than in USA;
- Mexico has natural advantages (below) to produce optimum product.
The time is NOW!
Timing
The timing is right because:
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The labor and cost of doing business in China has increased and is increasing rapidly;
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The public is weary of Made in China and would prefer Made in North America;
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The Mexican economy will be helped by increased work and prosperity;
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The timing is right to shift the production into Mexico!
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International business and tariff trends seem to favor Mexico over China.
Advantages for USA
Good neighbor policy; support NAFTA – USMCA; hemispheric stability; retain the domestic jobs for the domestic work force; keep the cash in the home hemisphere; (previously poor, China is now ‘rich enough’); lower cost of goods; goods more readily available…
Advantages for Mexico
More work, greater earnings, less violence in Mexico; when one is busy working, he will not have time to “get into trouble”. Greater earnings, greater purchasing power; nationals remain home; greater earnings create greater income hence greater tax income for government…
Hemispheric Advantages
By providing gainful employment in Mexico, in turn releases jobs in USA for the citizens of USA. Will tend to stabilize the immigration flow providing “Hemispheric Stability”.