Will higher wages in China effect Mexico?
According
to the Wall street Journal, China is experiencing rising wages and slowing
growth which may give Mexico the chance to get back some of its cheap labor
business it has lost over the past decade. It is believed that Mexico may
already be at the point of being the place to go for less expensive labor when
making certain products when one takes into account the difference in
productivity. It is believed that a Mexican worker typically out produces his
or her Chinese counterpart and in conjunction with closer proximity to the US
there is cheaper and faster shipping as well. For example factories on the
boarder can supply America very quickly and Mexico can take advantage of this
is very customized markets like fashion.
They are also the best option or bulky items that can be costly to
transport which can be seen in their production in the auto industry.
With
that being said China still has its advantages such as having a billion
consumers who will have more disposable income as their wages rise. Additional advantages include Mexico's Drug
Cartels scaring away new business, and
the country no having the skilled labor pool or parts-supply chain that China
currently possesses. Mexico is now
looking for the best position for itself given Chinas rising wages and it
should be noted that they currently export more than all the rest of Latin
America combined. Increase in business with Mexico would also be beneficial for
the US as American companies earn 37 cents for every dollar that Mexico exports
because the companies rely heavily on US parts--something China does not.
What do
you guys think about this in relation to what we are learning in class? The
text books description on proximity on pg 29 seems to correlate to exactly what
is going on here. Furthermore looking at the discussion of wages on pg 36,
while the text focuses on different industries in the same country I think we
can see the same thing happening between Mexico and China. The text states that, "If
the wages were not the same in the two industries, laborers in the low-wage
industry would have an
incentive to move to the high-wage industry; this would in turn, lead to an abundance
of workers and a decrease in the wage in
the high-wage industry and a scarcity of
workers and an increase in the wage in
the low-wage industry. This movement of labor would continue until wages are equalized between the two
industries."
While I am not suggesting Mexican laborers are moving to
China it is interesting to see the parallels in that Mexico used to be the
place to go for cheap labor and over the past decade much of that has moved to
China. Now China's wages are rising and there is thought of cheap business
going back to Mexico, although they no longer have the skilled labor pool or
supply chain.
Luhnow, D. (2012, September 16). For
mexico, an edge on china. Wall
Street Journal . Retrieved
from
http://online.wsj.com/article/SB10000872396390444318104577587191288101170.html?KEYWORDS=tariff
I am very interested by this topic I personally believe that businesses should have stayed in Mexico because of the proximity between the US and Mexico. The importance of proximity is so much more important the cost of labor since at the time Mexicans were seen as more productive than their Chinese counterparts. I lived in San Antonio for the past two years before coming to Ambrose and the effects of trade with the US was easily seen from immigrants that came to the US to study. Mexico's TOT definitely improved when businesses looked to Mexico for cheap labor. I definitely believe that even though the skilled labor force may not be in Mexico anymore with the growth in the Chinese economy businesses should definitely look to Mexico for cheaper labor.
ReplyDeleteGiven the stated arguments, I would have to think any new outsourcing will move back to Mexico. If China is starting to have higher wages, models would suggest that the outsourcing would go to the country with the lower wage. Also, the proximity argument can be applied. If the US were to move any new outsourcing to Mexico, the time and cost of transportation would be significantly lower than if the goods were produced in China.
ReplyDeleteI also think that the outsourcing will move back to Mexico....and I also agree that we should have stayed with Mexico in the first place because of the proximity. Mexico is located much closer to the US so there is no need for large ships to move the freight because it can all be done by semi or train....leading to a lower cost of transportation. I guess if the cheaper labor in China out weighed the additional cost of shipping on boat then I can see why the US decided to move production from Mexico to China. Now that China's wages are increasing then I can definitely see the US moving the production back to Mexico because their not gonna wanna pay the higher cost of labor and pay the transportation cost.
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