Mexico Manufacturing: The Heartbeat of The U.S. Medical Device Industry
June 17, 2014
In a global marketplace where production costs are critical, many firms are turning to an old partner—Mexico. Medical device manufacturing in Mexico, especially Baja California, has become a hub for companies around the world who want to supply North America.
Medical device firms, as well as other manufacturers, are realizing rapid labor-rate inflation in China, forcing them to search for other countries where the work can be done in the most cost-effective manner. Enter Mexico, whose labor rates are now virtually on par with China and whose natural gas costs are a whopping 63% less than the Asian powerhouse. Add the rising cost of fuel for transportation and Mexico’s close proximity to the United States and it is apparent why many firms are taking advantage of Mexico manufacturing expertise.
Welch Allyn is one of many examples; the manufacturer of medical diagnostic equipment moved their plant to Tijuana, Mexico in 2006 and labor costs in Mexico was a large factor in the move. “The practical reality is that it costs less to assemble a product in Mexico,” plant manager Dana Collins told the San Diego Union-Tribune in 2012. When asked why Welch Allyn chose Tijuana for the facility, Collins said that the area already had a well-established medical device presence and there was an infrastructure to support their new plant.
The Baja California area offers other perks as well; it has a literacy rate of 97.3% and 35 college-level or technical institutions in the area. It is also close to the US-Mexico border, making shipping quite easy even if cargo must be shipped out by air. Two airports serve the Baja area in a 20-mile radius and three major seaports are less than 200 miles away. Companies are able to concentrate more on research and development in the United States, while utilizing Mexico’s medical device manufacturing facilities across the border. Currently over 60 medical firms have facilities in Tijuana, Mexico manufacturing plastic parts, orthopedic products, orthodontic metal parts and surgical instruments.
There are not just medical-device manufacturers in Baja; other industries have moved to Mexico, manufacturing aerospace components, sound equipment, auto parts, watches and furniture. But the medical device industry is by far the largest employer in the area with a workforce of close to 35,000 employees, and Mexico is currently the sixth largest exporter of medical products according to the Global Trade Atlas. Harold Sirkin, a senior partner at Boston Consulting Group, concluded that both the U.S. and Mexico benefit from these types of partnerships. “It’s also good for America, since products made in Mexico contain four times as many U.S.-made parts, on average, as those made in China,” he said.
With China’s unit labor cost having gone up over 70% since 2007, alternatives have to be considered. Mexico was once a valued partner but lost ground to the Chinese and other countries overseas. Given climbing labor costs elsewhere, Mexico has positioned itself to be a long-term ally to manufacturers around the world.