Last year, I asked Andrew Hupert to explain what it takes to move manufacturing from China to Mexico. I chose Andrew for this because he has spent so much time in both China and Mexico, navigating their manufacturing systems from the inside.
My law firm frequently consulted with Andrew when we first started doing China legal work, and at that time Andrew was living in China. Though Andrew had for decades tied his life and career to China, he — like me — was one of the earliest proponents of a post-China manufacturing world. So much so that Andrew moved to Mexico, reinvigorated his Spanish language skills and began helping companies — especially companies looking to leave China — navigate Mexico. Who better, then, to write about what it takes to leave China (in whole or in part) for Mexico than Andrew Hupert?
Andrew wrote a series of five posts on the differences between China and Mexico manufacturing:
- The China Manager’s Guide to Mexican Operations: Comparing and Contrasting China and Mexico Operations
- Mexico for China Managers, Part 2: China vs. Mexico as Supply Chain Hubs
- Part 3: Comparing China and Mexico Manufacturing at the Operational Level
- Mexico for China Managers, Part 4: A Guide to Cross-Culture Negotiation
- Mexico for China Managers, Part 5: The Three Types of China-Mexico Supply Chain Transitions
Then at the end of last year, we wrote an introduction to what we expect will be a roughly ten part series to be written over the next 7-9 months. Already we’ve written the following and I urge you to read all of them, if you have not already done so.
- Three Things Everyone Leaving China for Mexico Should Know
- Three Mistakes We Made in China and Three Things We’ll Get Right in Mexico
- Mexican Supply Chain Management: You’re not in China Anymore.
- Five Potential Shocks to your Chinese Supply Chain in 2023
The below was written by Andrew and it constitutes our fifth piece in the series.
Managers shifting their focus from China to Mexico must adjust their approach, but this should not be much of a challenge.
One key difference worth noting, however, is that Mexican managers don’t have the same long-term, relationship-driven orientation towards business as Chinese managers do. The learning curve in Mexico is much steeper for both parties in the conversation – but one of the first things you’ll learn is that Mexicans tend to be quicker to say “no” than Chinese negotiators, and they mean it. That’s why it’s best to review some basic differences in management styles as part of your supply chain planning.
Let’s organize our discussion by looking at the following three big categories of differences.
1. Logistics-driven differences. Mexican businesses tend to be organized by each state based on access to the US market. China’s planned economy fosters distinct clusters of manufacturing and service providers in specific physical regions. Shenzhen is for manufacturing, Shanghai for services, Beijing for government and regulatory issues. Mexican production centers are geographically dispersed and not particularly well-integrated with one another.
2. Negotiating/Cultural differences. Chinese negotiators can be characterized as “patient pragmatists”. If they see potential value in a relationship, they will keep it going for as long as possible. Mexican negotiators are more like “decisive skeptics”. They want the deal, but if it doesn’t seem likely to happen, they will move on. US negotiators (short-term aggressors) will initially appear more aligned with Mexican decision-making – until their phone calls don’t get returned.
3. HR/Relationship differences. This is a big one, and it should favor US managers. Mexican managers view business through a North America lens. They see themselves on the same team as HQ in Detroit MI or Irving TX, and they aspire to professional success in the form of a better job within the same company. This contrasts with Chinese managers who – divided by distance, language, culture, and government policy – tend to view their tenure at foreign firms as a stepping-stone towards starting their own company or taking a high-level position at a Chinese company or government post.
Let’s look at each set of differences in a little more detail.
1. Logistical Differences
Mexico’s main commercial advantage is its 2,000-mile land border with its largest market – the United States. The USMCA (T-MEC in Mexico) institutionalizes the close physical relationship, and all three signatories (Canada is the third) form a single economic unit. It should be no surprise, then, that Mexican manufacturing is organized to capitalize on US markets.
But Mexico’s relatively weak central government means that each state has evolved its own set of strengths and weaknesses. The “Silicon Valley of Mexico” is Guadalajara in the state of Jalisco, while the “Detroit of Mexico” is Saltillo in Coahuila. These commercial areas developed their own specialties independent of central government policy or edicts. This contrasts with the PRC’s ultra-planned economy, where government driven SEZs had a tremendous influence on site-selection for both foreign and local firms. As a result, the Mexican economy is both physically dispersed and heavily siloed. Mexico’s entire 2,000-mile border with the United States is very active, but Mexico economic activity extends down the Pacific coast to Jalisco, over to Puebla, and up to Monterey and Matamoras on the Atlantic coast. Ports, highways, and rail lines are the organizing factors in Mexico – not Party planners. The good news is that you have many options, but the bad news is that it is up to you to research and organize your own facilities.
A complicating factor is the tremendous imbalance you face when reading news or trying to research data in Mexico. Mexican managers know much more about you and your commercial environment than you know about theirs. The main news outlets (including international business news) seem to ignore everything about Mexico except narco-violence, illegal immigration, and luxury resorts (though coverage of Mexican food is definitely picking up). This contrasts with China, which is so intensely covered and over-analyzed that mere hearsay about the feelings of top leadership becomes headline news. It’s your responsibility to develop an information strategy to gather mission-critical data about your Mexican operations.
The proximity of Mexican facilities to US HQs fosters a very different set of managerial relationships than you experienced in China. US managers can fly into Monterrey on Thursday morning, attend their meetings, see who they need to see, do the jobs that need to be done, and still be home for dinner on Friday night. No 12+ hour flights, no jet lag, no banquets, no week-long marathon meeting schedules. This fosters greater familiarity and relaxed relationships. Working in the same or similar time zones also greatly helps. This is one of the biggest and most immediate differences /pleasures I noticed when I moved from China to Mexico.
2. Negotiating/Cultural differences
We can understand the key differences between negotiators from each economy by characterizing Mexican negotiators as decisive skeptics and Chinese as patient pragmatists. We previously covered these differences in some depth in Mexico for China Managers, Part 4: A Guide to Cross-Culture Negotiation). Simply put, Mexican negotiators are quicker to say NO than their Chinese counterparts, and they stick to it. Mexican managers want your business, but they are not going to take chances, fill the gaps in your production plans, or move too far out of their comfort zone. If the deal you’re offering doesn’t make sense to them, they will walk away. In Mexico, you’ll be expected to prove yourself and show up with a complete plan that drills down to operational details. This includes your product plan, supply chain, bill of materials, and sources. Chinese factory managers were more than happy to direct you to members of their network to fill in any gaps. Mexican managers consider incomplete operating plans as disqualifying. If you haven’t figured out the details of transitioning your supply chain from China to Mexico, this is something your need to address early.
This underscores a significant difference in negotiating cultures of Mexico and China. Where Chinese managers are oriented to getting the deal (or at least signing an exclusive agreement), Mexican negotiators are willing to say NO and mean it. Many people consider passing on the deal to be the default setting in a Mexican negotiation, and it’s up to you to demonstrate the value of your proposal. It’s almost like a reverse-guanxi situation, where relationships are considered a potential liability. Though Chinese culture is known for being tolerant of uncertain resolutions and loose ends, Mexicans typically view uncertainty as an unnecessary risk.
Networking and connections are also polar opposites from one another. Chinese managers consider having a broad network that they can tap into for all manner of resources and solutions to be a recognizable sign of their intelligence and skill. Mexico is more about minding your own business, keeping your mouth shut, and getting the job done. In China, smart professionals want you to know that they know something about everyone and that they are well-positioned to barter favors and obligations at will. Don’t be surprised if Mexican negotiators display near total ignorance about anything not directly related to the role they play (or expect to play) in your business. Chinese networks are wide nets – Mexican networks are tall silos that stretch to the US headquarters, but not beyond.
The best way to view Mexican negotiations is that your counterparty is happy to transact but they are not desperate for your business and they are willing to remind you of that fact if needed. In contrast ,most Westerners in China operate on the coast from Shenzhen to Shanghai, where your counterparties live in constant fear of other Chinese competitors. Even if the financial value of your deal isn’t huge, the loss of face from allowing someone else to slaughter their sheep is a powerful motivator.
There’s not much learning curve here, because Mexican business culture is so closely aligned with US business culture. Many managers in Coahuila and Monterey won’t be offended if you refer to them as Spanish-speaking Texans (though this may conjure up some unfortunate historical facts). Tijuana and much of the rest of Baja CA are so familiar with California that they schedule their own travel around the spring-breaks of US schools. Experienced US managers have strategies for leveraging the aspirational nature of this close relationship. Mexican managers routinely work on cross-border teams and expect to be tasked with leadership roles. The culture gap in China was always a management challenge, and experienced negotiators were familiar with the Chinese tactic of “waiting for the foreigners to leave when times get tough”. Mexicans consider themselves to be 100% part of the North American team, and good managers lean into this.
Though ambitious Chinese managers plan to start their own company or join a prestigious local company after paying their dues in a foreign company, ambitious Mexican managers want a better position within the company. The Mexican orientation towards “Team North America” carries with it the expectation that good performance equals appropriate recognition and compensation. If you approach Mexican managers as though they are low-paid, low-value workers they will find new opportunities with better companies. It is that simple.
4. Final Word
Managing in Mexico is much more of a DIY affair than in China, and that carries with it advantages and challenges. On the plus side, your Mexican operation is closely aligned with senior management team & HQ. It is a single operation, using the same resources, processes, and systems. Mexican factory managers are at least as attentive to ISO 9xxx certifications and your company’s “Toyota Way” derivation as your flagship facility in the US.
The downside, however, is that in Mexico “no” means “no”. Lifelong relationships should not be assumed in Mexican negotiations. Though Mexican manages are open and optimistic about working with US companies, the history of US-Mexican relations has not always been positive for them. You are walking into the negotiation with a powerful set of tools and incentives at your disposal, but once you lose their trust it is gone for good.
China’s centralized planning created a safety net for Western business, whether you realized it or not. China state policy was on your side, at least as far as getting production up and running. Chinese managers had strong incentives to sign the deal and get you to spend, invest, and share know-how. In Mexico you are much more on your own. The toolkit exists in the form of Free Trade Agreements, tax incentives, cultural similarities, and hassle-free movement of goods into the US. But it’s up to you to do the research, fill in the gaps to your operating plans, and make the right deals.
For a free 30-minute introductory discussion about transitioning your supply chain to Mexico, email Andrew at Andrew@chinapocalypse.com.
For a free 30-minute introductory discussion about the legal issues involved in transitioning your supply chain from China to Mexico (or to anywhere else), email Dan at firstname.lastname@example.org.