Sourcing in Mexico gets easier
More U.S. buyers are doing business with Mexican suppliers as part of a global total-cost strategy.
By David Hannon -- Purchasing, 11/16/2006 2:00:00 AM
The global sourcing boom has put Asia and Eastern Europe in the spotlight recently. But buyers polled say the increasing logistics costs and risk management strategies are leading them back to where they started global sourcing: Mexico.
Buyers cite a variety of reasons for the return to Mexico. In a recent Purchasing survey, more than half of buyers polled say doing business with Mexican suppliers is easier today than it has been in the past. The obvious advantage of Mexican suppliers over Asian ones is, not surprisingly, their proximity to the U.S. and lack of logistics hassles, which are factoring prominently in total cost equations.
“The total cost when you factor in logistics, leadtimes, turnaround times, and communication issues is much lower in Mexico than other regions of the world,” says David Lankewicz, purchasing manager at Maryland-based battery maker Saft America.
In a recent survey, sourcing service and technology provider Ariba found that 36% of money spent in global sourcing goes to Mexico and most buyers polled plan to increase or keep level their sourcing in Mexico. More than half of the survey respondents said the migration was from U.S. or Canadian suppliers to Mexico, while in 3% of cases, the migration was from China to Mexico.
The Ariba report says: “The takeaway from the survey is that companies need to take TCO more seriously than they do...China and India undoubtedly have their attraction but when all parameters are analyzed, Mexico can be equally competitive.”
Benefits
Gildardo Talavera, Latin American sourcing leader at Danaher Motion in Wood Dale, Ill., says Mexican suppliers are, “More familiar with competitive manufacturing techniques and tools than Asian or Eastern European suppliers.”
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“Competing on price alone is a challenge with China and India particularly,” says Al Brown, president of SupplyMex, an Illinois-based firm that helps U.S. companies find and contract with Mexican suppliers. “But when total landed cost is considered, Mexico is very competitive with other low-cost countries.”
Other advantages the Mexican market has over other global markets include lower language barriers and its longer history with U.S. businesses and processes.
As an example, Brown says in sourcing aluminum die cast work, buyers often find that Chinese suppliers use a diecast tool that may begin to erode in a year. “In China they build an aluminum die cast tool on par with a plastic injection molding tool,” Brown says. “It's not designed to the American standards for tool design. Mexican suppliers are more in tune with U.S. standards and build a more quality diecast tool. So we've seen companies go to China and come back to Mexico in these areas.”
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Doing business in Mexico Dos • Take your time. The pace of business is slower in Mexico and developing relationships in Mexico takes time. • Learn about the suppliers you want to do business with, including personal and family information. Take notes after a meeting to help remember more personal specifics. • Dress for success. Mexicans like to do business with successful players. Look the part. • Learn Mexican holidays and know when your supplier is open and closed. Don'ts • Violate trust. Trust is a bigger factor in Mexican business relationships than in many other regions. Respect it. • Believe the stereotypes about Mexico. Some are true, but it's a big country and the rules in one region are not the norms in other regions. • Plan on a quick lunch. Business lunches in Mexico typically run two to three hours and conversation goes well beyond business topics. |
Brown points out that when many U.S. companies moved manufacturing to Mexico in the 1980s and early 1990s, they implemented ISO and U.S. standards at those sites, looking to mirror their U.S. manufacturing. So that emphasis on quality has influenced the current Mexican manufacturing environment.
Brown says small things, such as the way you dress, can make a difference in developing relationships in Mexico. “Mexicans like to do business with successful businesses and how you dress can convey that message,” he says. “It might not mean a suit and tie, but a nice watch and nice shoes can go a long way to adding credibility in a Mexican businessman's eyes.”
Challenges
But there are challenges to doing business in Mexico. Buyers in the Purchasing survey cited logistics capacity out of Mexico, border challenges and different paces of doing business.
“The biggest challenge is finding the right suppliers,” says one survey respondent. “Often I have to work through trading companies or the Mexican embassy just to find a supplier that can manufacture my product. Most Mexican companies do not advertise on the Internet.”
Another respondent says “Material prices in Mexico have risen steadily based on exposure to U.S. pricing.”
Art Laszlo, corporate strategic sourcing leader at Brunswick Corp. in Lake Forest, Ill., warns that some Mexican suppliers have difficulty adapting to the “demanding work environment” U.S. businesses have created. The rush to market can create more confusion with Mexican suppliers.
“When dealing with Mexican suppliers, you must be very clear with your expectations to ensure that specifications, leadtimes and other requirements are consistently met,” he says. “Mexico is a big country with limited infrastructure in many areas, which has to be accounted for in leadtimes.”
Eric Heuck is a supplier executive with Rolls-Royce North America in Chantilly, Va., which sources components for airplane engines in Mexico. He says the U.S. Commerce department warns that border towns in Mexico are more corrupt and have high employee turnover.But he recommends buyers go into Mexico with an open mind. “I think in general buyers will find Mexican suppliers are more educated, driven and motivated than the stereotypes carry. Are they perfect? No more than their U.S. counterparts, but if developed they can definitely provide outstanding performance. Developing them and taking the time to teach them what they need to know is key, don't make assumptions and don't follow stereotypes. If they can produce turbine engine components, they can make just about anything.”
Brown says corruption does occur in Mexico, but not to the extent that most U.S. businesspeople may think. “If you focus on building relationships and trust, you don't need to pay anyone to get anything done,” he says.
Lankewicz recommends avoiding the border hassles by having Mexican suppliers handle importation into the U.S. “Have them ship from a U.S. warehouse in San Diego, El Paso, or Brownsville, Texas,” he says.
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Why source in Mexico? Read a compelling opinion pieceHEREby Al Brown of SupplyMex on why you should include Mexico in your global sourcing plans. For more information on doing business in Mexico try these sites: The U.S. Commercial Service’s site on doing business in Mexico. Want more information? Read this report “Doing Business In Mexico” from the World Bank. Another resource on doing business in Mexico courtesy of the Australian government’s department of foreign affairs and trade. U.S. embassy in MexicoExecutive Planet’s guide to MexicoExecutive Planet’s guide to negotiating in Mexico Mexperience’s site on business etiquette in Mexico |
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