This weekend we had a chance to catch up with a partner of ours, German Dominguez, who is based out of Juarez, Mexico. German sources parts on behalf of American companies. This is Part One of a Two Part interview.
Question: How many programs have you quoted on during the past 4-5 months where the buyer was trying to decide where to go between China vs. Mexico? Please describe what types of program these were as well.
Answer: I have looked at 10 new programs in total. Six of them moved to Mexico (four were for new products) and two migrated from China. Four were awarded to China (and one went from Mexico to China). Four of these programs were for new products altogether where we looked at a full concept-to-market and two programs were currently sourced in China but the buyer had hoped to re-source to Mexico. The re-sourcing projects were machined components and light metal fabrications. The new products were machined components and light metal fabrication with electro-mechanical components. So I could characterize all of these as value-added parts and/or assemblies.
In terms of materials used, all of the new products were aluminum but not aluminum extrusions. Resourced projects included carbon steel fabrications (HR and CR steel sheet and sheet metal fabrications). I lost one metal fabrication project to China for heavy plate (China is now cheaper). This is the first time in the last two years that this happened.
Question: What kind of savings have you seen on these various programs?
Answer: For existing machined components from China that moved to Mexico, Mexico was 12-15% price higher than China. Eight months ago those parts were 35-50% higher out of Mexico. So we are seeing that Mexico is closing the gap. What is interesting is that Mexico was very competitive for heavy metal fabrication but is now coming up closer to the US price and now China is more competitive on heavy metal fabrications as a low cost country. Traditionally, Mexico was not as competitive as China for light metal fabrication and some machined parts but we’re seeing that now Mexico is starting to close the gap. Mexico remains more competitive for light metal fabrication than US domestic prices.
Question: This is all positive news but it’s not what we are hearing. We are hearing that US manufacturers are having a hard time obtaining quotes that are even close to their China suppliers (often new and higher) prices. What gives?
Answer: The culture of Mexican suppliers especially the 100% nationals (Mexican owned firms) tend to operate with a different profit-margin mentality. If they see you as someone requesting a quotation not wanting to become a long term partner, you will not receive a competitive quotation. Mexicans need to see you as a partner in business. A web interface or web marketplace will never allow you to pave the way to gain their trust.
Editor’s Note: I asked German if his answer was a little self-serving.
He replied, “ironically the Chinese and Mexican business style is more similar than the US and Mexico business style especially around the customer/supplier relationship. “Meals, for example, are a big part of doing business in China and they are also a big part of doing business in Mexico too. You can’t get the full savings/cost reduction benefit from Mexico until the supplier sees you as a true partner. In terms of the RFI/RFQ process, a Mexican supplier will try to make sure that they don’t leave any money on the table. In the US, companies place a standard corporate margin against their quotes. Mexicans look at it as a means to charge as much as they can initially. It’s a personalized decision by the supplier how much they want to charge as the mark-up. This is another reason why China and Mexico are quite similar.
Tomorrow we’ll cover how American firms can obtain more competitive quotes out of Mexico and why total landed cost models might not help in contract awards!