econscius

Archive for the ‘Mexico’ Category

Rising Wages in China Make Mexico More Competitive But Challenges Remain

In China, Economy, Mexico on September 17, 2012 at 11:51 pm

Mexico’s favorable geography

Rising wages in China make Mexico more competitive by comparison.  From a Wall Street Journal article by David Luhnow and Bob Davis [1], highlights follow:

Mexican wages, including benefits, average $3.50 an hour, compared to $2.50 an hour in China, after wage pressures there.  Given Mexico’s proximity to the United States, especially for border cities like Juarez, the slightly higher Mexican wages are often a better deal on account of quick time to the US market as well as lower shipping costs.

Because most parts are sourced locally, Mexican production is better for US suppliers than Chinese.  Most manufacturing inputs in China are made either there or in nearby countries like Malaysia or Thailand, whereas many inputs for Mexican production are made in the US.But, Mexico has disadvantages.  One factor going for China is its own gigantic domestic market of over one billion consumers.  Factories in China can ship to the local market as well as for export to the US.  The Mexican homicide rate (18.2 people per 1000,000 people) is higher than five in the US and 1.1 in China.

Lastly, an accompanying chart shows the woeful problem of the Mexican public education system.  Whereas China rates #54 for overall quality of eduction system (and #5  for tertiary education enrollment, #33 for availability of scientists and engineers), Mexico rates #107 for education (#79 tertiary enrollment, #86 for availability of scientists and engineers).Geography and hard-working people have Mexico in a favorable economic place.  But, decades of underperforming education, especially in math and science, hurt its competitiveness.  Furthermore, the legacy of local Mexican police corruption and spillover from demand for illicit drugs in the United States have led to horrific violence from cartels and criminal gangs. 

Mexican Maquiladora

[1] http://timesofnews.co/2012/09/17/for-mexico-an-edge-on-china

It Isn’t All Labor Costs… Shale Energy & Shipping Costs Impact Imports

In China, Job Creation, Mexico on February 26, 2012 at 7:23 pm

Two container ships pass in San Francisco Bay

Lots of factors enter into decisions about where companies manufacture.  Without question, a lot of US manufacturing has gone abroad, but not all; some may even be coming back due to cost equation changes.  Not everything goes to the country with the lowest wages (which would be in sub-Saharan Africa, not China, anyway) because of matters like productivity of the workforce, energy costs, shipping costs, the time for products to be received back to the US, local taxes, corruption, safety and rule-of-law in the other country, etc.

Mexico is actually gaining on China as a more attractive place to manufacture despite slightly higher wages, on account of the evolving cost equation.  An interesting piece in the Business section of the San Antonio Express-News gives some details why.

“Production workers in the U.S. make about $15 an hour, according to data from the U.S. Bureau of Labor Statistics. Industrial workers in Mexico make about $3.50 an hour, as opposed to $3 an hour in China, according to a report from the National Council of Maquiladora and Export Manufacturing Industry.”

“But the savings in labor are eroded with the higher cost of shipping from Southeast Asia. It costs $4,300 to ship a 40-foot container from Hong Kong to San Antonio via Long Beach, Calif., and will take 24 to 26 days to get there, according to DHL Global Forwarding. It costs $1,800 to drive a 40-foot trailer from Ciudad Juárez to San Antonio, and the trailer will get there in eight to 10 hours.” [1]

I often hear “$1 a day” bandied about as a wage in other countries, but as noted in the article, industrial workers in China earn about $3/hour and Mexican workers $3.50/hour.  That is certainly less than US norms, but probably higher than most people think.

Note the key driver of expense here:  shipping.  A standard forty-foot container costs $4,300 to get from Hong Kong to San Antonio, TX.  It still costs $1,800 for the same container to make it from the major Mexican manufacturing city of Juarez (across the Rio from El Paso) to San Antonio.  I point out time is valuable for manufacturers, too, so the more distant manufacturing is, the more of a hassle it is for extending the supply chain.  A container easily takes a month by ship from China to here.  Mexico is closer and local US manufacturing is closest of all.  It is no surprise a lot of manufacturing where time is critical (e.g. food processing) or very heavy, bulky items that won’t fit in a standard shipping container (e.g. making concrete or pre-manufactured housing) take place in the US because of the savings on time and shipping costs for heavy, bulky items.

The article continues:

“Manufacturing costs in China are about 94 percent of U.S. manufacturing costs, according to a 2009 report from consulting firm AlixPartners. In Mexico, manufacturing costs are only 75 percent of what they would be in the U.S., according to the report.” [1] [2]

China has become less attractive vis-a-vis Mexico because of a 20% appreciation in the Chinese Yuan, rising wages in China, and higher shipping costs, presumably reflecting higher fuel prices. [2]

Did I say rising wages?  Yes, another article in the Wall Street Journal also refers to rising wages in China because “the pool of Chinese workers is getting shallower.  China’s one-child policy and cultural preference for boys have led to a shrinking population of young people, particularly the women who work the floors of the apparel and electronic firms.” [3]  The WSJ continues, “labor costs are going up faster than productivity increases” in China.

This will have an impact on next door Mexico and even on the US as some companies look at the overall cost-benefit equation and decide to bring some operations home. [3]

El paso border station photo

Energy costs also matter.  There is very good news for American workers in the shale-gas boom states.  Another Wall Street Journal article points out how the rapid increase in low-cost natural gas from the shale drilling boom is cutting energy costs.  Shale states like West Virginia, Pennsylvania, and on the Gulf Coast are seeing interest from chemical companies opening brand new manufacturing plants to be near low-cost natural gas energy.  Shale gas now accounts for 1/3 of all natural gas in the US. [4]  “The US chemical industry is the biggest potential winner from the shale boom.” [4]

It is important to keep in mind that manufacturing siting locations are not exclusively about wages because energy costs, shipping costs, unionization, worker productivity, proximity to markets, corruption, safety and rule-of-law are all factors.  Some factors we can control (shale energy) are helping US manufacturing attractiveness while some other factors beyond our control (higher wages in China and higher global shipping costs) are also helping.

[1] http://www.mysanantonio.com/news/mexico/article/Despite-drug-war-trade-with-Mexico-is-booming-1360569.php   Note the article also speaks of the negative impact of drug war gang violence in Mexico.

 [2] The research the Express-News refers to is: http://www.alixpartners.com/EN/portals/0/pdf/AlixPartners%202009%20Manufacturing-Outsourcing%20Cost%20Index%20HIGHLIGHTS_2.pdf.  See page 13 for China and page 14 for Mexico.  Notice wages rose in each country between 2005-8.

[3] http://online.wsj.com/article/SB10001424052970204662204577201361904633428.html (behind paywall, get slightly more free on reprint at http://www.mexbiznews.com/chinas-export-pain-might-be-mexicos-gain).

[4] http://online.wsj.com/article/SB10001424052970204844504577100421253005122.html (behind paywall).

Pictures (container ships; Ciudad Juarez, Mexico; El-Paso/Juarez border crossing; natural gas drilling rig) from Wikipedia Commons.

 

MexicUSA: What the Merger of Mexico and the United States Would Mean For English

In Immigration, Mexico, Political Rhetoric, Spanish Language on January 27, 2012 at 12:11 am

Let us consider the merger of the United States and Mexico!  Welcome MexicUSA!

I sometimes hear we need to limit immigration or else Spanish will someday overtake English in the United States.  Is that possible?  What would a hypothetical US-Mexican country be like demographically?

First, let me say this is a wildly hypothetical example.  Mexico is a proud country and a merger with the United States is as unthinkable to most Mexicans as it is to most Americans as well.

I bring up a US-Mexican merger simply to show what it would be like demographically, as an extreme case, since it helps address whether there are linguistic or cultural challenges to the United States from a half million or million immigrants.  Let us not talk small ball but instead consider welcoming all of Mexico as immigrants all at once!

Mexico has 112.4 million residents. [1]  The USA has 312.9 million residents. [3]  In our new MexicUSA, the old Mexico will account for just 26% of the new US population.

But what of the future?  Isn’t Mexico growing faster?  Even in 2050, the old Mexico population is projected to be 132.3 million [4], compared to 402 million in the old USA [4], meaning old Mexico would actually drop a fraction to be just 25% of MexicUSA.

That certainly does not suggest Mexico would dominate the MexicUSA.

Most Mexican elites learn English.  Many study in the United States.  The last three Mexican presidents (Felipe Calderon, Vincente Fox and Ernesto Zedillo) all had degrees from top US universities.  I have been unable to find an exact statistic on what proportion of Mexicans, whether elite or general population, speak English, I did find this quote: “As far as second languages go, a relatively large number of educated Mexicans (and those with little or no education who have immigrated to the US and returned) have different degrees of fluency in English.” [5]   Also, “on an every-day basis most Mexicans listen to contemporary music such as pop, rock, etc. in both English and Spanish.” [1] 

Evidence of the popularity of American English culture can be found on the Mexican music charts.  In 2012, through May, the #1 spots are dominated by English language albums from non-Mexican artists (Adele, Madonna, & One Direction).  Contrast that with the almost exclusively English language pop charts in the United States.  The Mexican chart’s top Spanish language album is from Yuridia, who lived in Arizona for nine years and speaks English. [2]

It is well-known that Mexican elites in business, politics and culture generally speak English.  This is, of course, common for elites worldwide.  In MexicUSA, the political, business and cultural leaders from the former Mexico will be able to conduct themselves in English. 

An interesting piece of immigration assimilation is intermarriage.  It has long been extremely high amongst Asians and Hispanics.  “Among all newlyweds in 2008, 9% of whites, 16% of blacks, 26% of Hispanics and 31% of Asians married someone whose race or ethnicity was different from their own.” [6]  Twenty-six percent, of course, means one out of four.  I know many Hispanics who are married to Anglos.  Their children are as “American” as anyone else and always speak English. 

Some argue Hispanic immigrants in the USA, whether from Mexico or elsewhere, do not speak English.  That is simply untrue over time.  Hispanic immigrants learn English and their children speak it better.  By the third generation, many solely speak English.

Twice I had Latina girlfriends, both of whom spoke English.  One was an immigrant from Mexico and the other, born here, had virtually no accent and hardly knew more Spanish than me!  I have had many Hispanic friends and co-workers and invariably they speak English, usually fluently.

“Among second-generation Hispanics, 92 percent speak English well or very well, even though 85 percent speak at least some Spanish at home. Eleven percent of Mexican second-generation children speak only English at home, compared to five percent in the first generation.” [7]

English-only is the predominant pattern by the third generation. These children speak only English at home, making it highly unlikely they will be bilingual as adults… The level of English monolingualism is lower among Hispanics, but, at 72 percent, it is still a clear majority.  71 percent of third-generation Mexicans speak only English.” [7]

The evidence is clear.  Even in the extraordinarily unlikely instance the United States absorbed its Mexican neighbor to the South, the “old” USA would still comprise 75% of the combined population.  Mexican elites already speak English and often attend US universities.  Many Mexicans listen to American pop music and otherwise follow American culture.  Mexican-Americans in the USA learn English over time with second generation children speaking English.  By the third generation, almost 3/4 of Mexican-Americans speak only English.  Intermarriage rates remain quite high so that millions of 2050 Americans will be of mixed Hispanic-other ancestry. 

A half million or million more – or even ten million more – immigrants will never swamp English as a language, no more than your own ancestors’ Yiddish, Polish, Greek, Dutch, Tagalog, German, Italian, Cantonese, Lithuanian, Ukranian, Czech or Swedish held you back from learning English.  Do you even speak your ancestors’ native tongues?  Probably not.

Topography of the United Mexican States

[1] http://en.wikipedia.org/wiki/mexico retrieved 1/27/12.  Technically, Mexico is called the United States of Mexico.

[2] http://en.wikipedia.org/wiki/List_of_number-one_albums_of_2012_(Mexico)#cite_note-5 retrieved 5/17/12.

[3] http://en.wikipedia.org/wiki/United_states retrieved 1/27/12.

[4] http://www.un.org/esa/population/publications/wpp2006/WPP2006_Highlights_rev.pdf

[5] http://en.wikipedia.org/wiki/Languages_of_Mexico retrieved 1/27/12.

[6] http://pewresearch.org/pubs/1616/american-marriage-interracial-interethnic

[7] http://www.migrationinformation.org/Feature/display.cfm?id=282  Emphasis in the original.

Pictures (flags, Yuridia, Mexico maps) from Wikipedia Commons.