Mexico beats china as cessna shows wages converge with shipping

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By Thomas Black and Carlos Manuel Rodriguez
Sept. 8 (Bloomberg) -- When Cessna Aircraft Co. sought a
low-wage country in 2006 where it could manufacture airplane
parts, its first instinct was to go to China.
After struggling to find a way to ship supplies to the
Asian country in less than a month, the Wichita, Kansas-based
producer of light airplanes discovered a better solutionjust
across the U.S. border: Mexico.
“Shipping to and from Mexico is easier and faster because
it’s over land rather than by sea,” Cessna Chief Executive
Officer Jack Pelton says. “It provides a way for Cessna to
become more competitive as we deal with the challenge of the
current economic situation.”
Now, Cessna is completing a fourth expansion, in the city
of Chihuahua, Mexico,that will bring factory floor space to 10
times its initial size, Bloomberg Markets magazine reports in
its October issue.
Cessna has plenty of company. Last year when Benton
Harbor, Michigan-based Whirlpool Corp. decided to cut production
because of flagging consumer demand, it closed a plant in
Evansville, Indiana, and shifted more work to Monterrey, Mexico.
Polaris Industries Inc.said in May it picked Monterrey to build
all-terrain vehicles and ship them to the southern U.S. The
Medina, Minnesota-based company is closing a factory in Osceola,
Wisconsin.

Wage Gap Closes

Singapore-based Flextronics International Ltd., which
manufactures mobile phones, auto parts and medical products for
other companies, is looking more at Mexico asthe wage gap with
China closes, says Chief Executive Officer Michael McNamara.
After years of losing chunks of the U.S. market to China,
Mexico has begun taking some of it back. Mexico’s share of the
products the U.S. imported for the first five months of the year
rose more than a percentage point to 12.3 percent, while China’s
position dropped to 17.3 percent from 18.6 percent.Average Chinese manufacturing wages at just under $2 an
hour are only 14 percent less than Mexican salaries as of this
year, according to estimates by Mexico’s Finance Ministry.
Salaries south of the border were more than three times higher
in 2002.
From 2002 to 2008, the last full year of official wage
data, Chinese manufacturing salaries in dollars jumped 2.6
times, while Mexican wagesrose only 7.5 percent in dollars from
2002 to 2009.

‘More Attractive’

“Every year that goes by, we’re going to see Mexico
becoming more and more attractive as an alternative to China,”
Flextronics’s CEO McNamara said during a conference call with
analysts on July 22. He also said companies would move factories
to Eastern Europe.
Flextronics’s revenuefrom Mexico has risen to 15 percent
of total income at the end of the second quarter this year, up
from 10 percent two years ago.
Foreign companies are brushing aside concerns about drug-
related violence. Since 2006, 28,000 people have been killed as
narcotics cartels fight one another and police to grab a larger
share of $39 billion in drug sales annually to the U.S.
Companies areenticed by a peso that has weakened 21 percent
against the dollar since 2008.
U.S. manufacturers like the proximity of Mexico and the
fact that the country has few labor strikes, shares time zones
with the U.S. and has cultural similarities with the rest of
North America, with most Mexican executives and middle managers
able to speak English.

‘Well Positioned’Beginning with the North American Free Trade Agreement in
1994, Mexico has courted foreign investors with lower tariffs
and legal protections. The country now has trade pacts with more
than 30 nations, such as the members of the European Union,
Colombia, Israel and Japan.
“Mexico is very well positioned to take advantage of U.S.
growth,” says Edgardo Sternberg, an emerging-market...
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