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Five Reasons Sourcing from Mexico Is a Smart Move for Ecommerce Businesses
By Ian Drogin
Over the last two years, ecommerce businesses have encountered unprecedented disruptions to supply chains in nearly every industry. When combined with mounting production and transportation costs, these challenges have prompted savvy owners to reconsider their sourcing strategies. For many, sourcing from Mexico is an increasingly appealing alternative to working with Chinese suppliers.
In this article, we discuss five compelling reasons why sourcing from Mexico is a smart move for ecommerce businesses. We also share best practices to overcome common challenges, as well as strategies for finding the right suppliers in Mexico.
Much of this information was shared during The Mexico Trip by world-renown ecommerce experts Tim Jordan, Amy Wees, Norman Farrar, and other guest speakers who appeared at the event.
Five Reasons to Move Manufacturing to Mexico
For ecommerce businesses in North America, there are several key benefits to manufacturing in Mexico. Many large companies such as Ford have already made the transition, and smaller businesses are quickly following suit.
Since each business and industry is unique, some of these benefits may apply to your particular business more than others.
1. Reduce lead times and shipping costs
Compared to most Chinese suppliers, Mexican manufacturers can often provide significantly shorter lead times. This is primarily due to the shorter distances inventory needs to travel to reach fulfillment centers in North America.
Chinese products need to be transported to a Chinese port, cross the Pacific Ocean, make it through customs, get packed onto a truck, and then finally reach their destination. Even if everything runs smoothly, that process often takes three-to-six weeks or more. And if your inventory gets held up at customs, it could be even longer.
On the other hand, products sourced in Mexico have a much shorter journey. In most cases, your supplier can simply load your inventory onto a truck for direct transportation to a fulfillment center across the border.
“Compared to most Chinese suppliers, Mexican manufacturers can often provide significantly shorter lead times.”
This significant difference in shipping times dramatically reduces your lead times. Any experienced seller knows shorter lead times are invaluable when it comes to managing cash flow, avoiding stockouts, and meeting customer demand effectively. Also, when you have a leaner supply chain it’s easier to avoid upper limit problems as your business grows.
Not surprisingly, the shorter shipping distance leads to a corresponding reduction in shipping costs. Depending on the size of your products, the cost savings of shipping from Mexico can be significant.
2. Gain a strategic advantage over competitors
There are many products for which there are significant advantages to producing in Mexico.
For starters, since it is less expensive to ship large products from Mexico, sellers can pass some of those saving along to consumers. This enables them to offer lower prices that competitors simply can’t afford. Of course, this help them increase their market share.
Additionally, trade relations between the US and Mexico are more favorable than those between China and the US. Because Mexico is part of NAFTA, businesses can avoid paying the high import tariffs to which Chinese products are subject. Different kinds of products are subject to different tariffs, however, so this should be explored on a product-by-product basis.
3. Lower MOQs
Established Chinese suppliers are used to dealing with large order quantities. This often makes them unwilling to accept small orders from ecommerce brands that are seeking to test new ideas. Consequently, sellers generally need to dedicate more capital to launch new products.
Mexican suppliers, on the other hand, don’t always have the luxury of receiving large orders. Therefore, they’re often more willing to deal with smaller purchases. For ecommerce businesses, this means you don’t necessarily need a large budget to get a product off the ground.
4. A strong labor market for manufacturing
Mexico has a well-educated labor market, which has enabled the country to make quick strides in its manufacturing capabilities. Engineers and other professionals are in a great position to capitalize on the demand from North American companies.
While education rates are continuing to rise in Mexico, the average salary is still much lower than in the US. Therefore, companies that source from Mexico can benefit both from skilled labor and lower labor costs.
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5. Visit factories with relative ease
If you want to visit your Chinese suppliers, you need to fly twelve or more hours, deal with complex immigration policies, and face the challenges of switching time zones. All of this requires time, money, and patience.
Visiting a Mexican supplier, on the other hand, is comparatively simple. All you have to do is take a two-to-four-hour flight and breeze through customs. And because you barely need to change time zones, traveling to Mexico doesn’t need to significantly disrupt your work schedule (or sleep schedule, for that matter).
For business owners who like to take a hands-on approach during the product development process, this is a huge advantage. Not to mention, your day-to-day communication with suppliers is much easier when you don’t need to wait until 9:00 pm EST for them to be starting their work day.
Manage Risks with an Effective Mexico Sourcing Strategy
While sourcing in Mexico has many benefits, it’s not without potential challenges and risks.
Many Mexican manufacturers don’t have experience working with US ecommerce companies. In fact, a lot of them have never engaged in importing and exporting. This is one reason why sourcing in Mexico can provide you with a competitive advantage. However, it also means that your Mexican supplier may not understand the process of working with businesses like yours.
If you’ve worked with a lot of Chinese suppliers, you know that many of them understand the steps involved in exporting to the US. Additionally, they also know how to prepare shipments specifically for particular platforms such as Amazon.
Compared to Chinese suppliers, many Mexican suppliers may need a bit of hand-holding. They might still be figuring out how to get an export license or how to prepare shipments according to FBA requirements. Additionally, a lot of Mexican suppliers might not have the capacity to produce large quantities of inventory as you scale your business.
To address these potential challenges, it’s important to discuss these items with potential suppliers early on. Additionally, it might be worth hiring a sourcing agent who has experience working with suppliers in Mexico and Latin America. Afolabi from Honu Worldwide is one such provider who has extensive experience helping businesses with product development, sourcing, and logistics solutions.
How to Export Products from Mexico
In addition to using the right forecasting tips to determine the right order quantities, businesses must also be aware of the relevant requirements when exporting from Mexico.
Mexican exporters must provide specific documents when exporting goods. Some of these may include a bill of landing, packing list, invoice, and export license, to name a few. Because regulations change quickly, it’s important to speak with government authorities or a reliable agent to understand the requirements and documentation involved in the process.
Sourcing from Mexico 101: How to Find a Mexican Exporter
Once you’ve decided to explore the possibility of sourcing from Mexico, the next step is to find the right supplier.
When you’re looking for Chinese suppliers, all you have to do is head over to Alibaba and perform a quick search. You’ll quickly find numerous manufacturers for just about any product you can think of. Unfortunately, it’s not quite that simple when you’re sourcing from Mexico, either for finished products or raw materials.
Although there isn’t an “Alibaba for Mexico,” there are several online directories where you can find suppliers. Directories may be a great place to start, but you’ll likely find them a bit limiting. After all, a lot of Mexican manufacturers don’t even have a website, much less an online presence elsewhere.
Fortunately, there are a couple of other ways to find suppliers when sourcing from Mexico.
If you hire a sourcing agent, they may be able to connect you to the right manufacturer in Mexico. Of course, you’ll need to pay them for their services, but it can be well worth it if it leads to a strategic partnership and lower import fees.
Additionally, you can go directly to the source. While not common, sourcing events such as The Mexico Trip are great opportunities to connect with manufacturers directly. This enables you to form relationships that others in your industry don’t have access to. Traveling to Mexico to find suppliers certainly requires some dedication to your business, but it can also put you on the cutting edge when it comes to establishing a unique ecommerce supply chain.
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