Chinese enterprises in Mexico: Innovating on new soil
Chinese enterprises in Mexico: Innovating on new soil
Building from scratch - self-developed infrastructures, cross-cultural management, and business mindset transformation
Last December, we shared a translated article about Chinese enterprises venturing into Mexico, which sparked significant interest among our readers. Fast forward to today: what has changed in this landscape? A year ago, entrepreneurs described their experiences as "pioneers, akin to ducks being herded onto a shelf—rushed and disorganized." With a year passed, have they found their footing amid these challenges? What new hurdles have emerged, and how has their perspective evolved?
To address these questions, we present a translated article by Liu Run, a prominent Chinese business consultant and author who has recently returned from a trip to Mexico, where he visited several pioneering Chinese factories, from furniture to home appliances, to provide you with an updated snapshot.
My key takeaways from this article include:
Firstly, the spirit of reform: These entrepreneurs who venture abroad are also pioneers – much like the Chinese entrepreneurs during the reform and opening-up era. They start from scratch, finding methods amidst desolation and challenges and forging their own paths.
Secondly, a dynamic entrepreneurial mindset: Originally profiting from the "cost minus tariff" difference, they have shifted to a "cost versus value" approach – creating higher technological barriers and developing unique products tailored to the local market rather than simply replicating Chinese production methods overseas.
Below is Baiguan's translation of the original article (some paragraphs are abbreviated or redacted).
Today marks my final day in Mexico.
I decided to leave behind the pack of Master Kong Braised Beef Noodles that I carried all the way from China to Silicon Valley, then to Mexico City, and finally to Monterrey, leaving it in the hotel room. Thank you.
Next, I visited several pioneering Chinese factories here in Monterrey, such as Jason's Furniture (603816. SH), Hisense (000921. SZ), Cheersofa (01999. HK), and more.
How did you arrive in Monterrey? What challenges did you face, and how did you overcome them? How are your operations running today?
These hard-earned lessons, paid for with real money and effort, are invaluable. Let's sit down and discuss them in detail.
However, before we even had a chance to sit, we encountered one of the very challenges you mentioned earlier.
The ancient means of communication, the telephone, is still useful here
As the bus approached the industrial park, something unexpected happened—WeChat stopped working.
My phone still showed a full 4G+ signal, yet WeChat kept unable to connect to the network. Thinking it was just my phone, I restarted it, but the issue persisted. I asked those around me and soon realized that no one's WeChat was working.
Our guide began to panic. The factory managers were waiting for us, and we had no way to reach them. Hurriedly, we scrambled for phone numbers. In that moment, the good old telephone—the ancient means of communication—became invaluable.
Losing access to the internet is almost unimaginable in today's world. Curious, I asked our host what was going on.
"Oh, it's because the local base station has been down for a couple of days," he replied casually. "It's being repaired. Drive two kilometers down the road, and you'll get a signal."
He said it so matter-of-factly.
I asked, "Does this happen often?"
Mr. Ren, the general manager from Cheersofa, responded, "Not frequently, but occasionally. Sometimes, they even cut the network to disrupt communication between drug cartels."
I admit, I was stunned. I glanced at his face—it didn't seem like he was joking.
"Can't they fix it faster? Two days seems like a long time," I pressed.
"It's not that they can't fix it; it's just that their efficiency is incredibly low," our host replied, his tone growing a bit frustrated.
The Cable was cut, and the air conditioning was down for two weeks
A factory manager recalled an incident when construction work in the park accidentally severed a power cable. The entire dormitory area lost power and internet.
In Monterrey's scorching desert climate, where one of the local delicacies is cactus fruit, enduring the heat without air conditioning is unbearable. Naturally, we reported the issue for repair.
The technicians arrived, identified the problem, and then informed us they were missing a part. So, they left to fetch it. Hours went by, and they didn't return.
We called to check on the status: "Is the part ready?" they replied, "Yes, I'll come by tomorrow morning to fix it."
Here, people seem to be "friends with time." In fact, they're very good friends. There's no rush. Eventually, it took two full weeks to restore power.
This isn't about complaining—complaints are pointless. When you venture overseas, it's because there's something you're after. But you must also understand the hidden costs behind those opportunities—things you might never imagine back in China.
Take inefficiency, for example. It's one of those hidden costs. But just how inefficient? Well, now you know.
1 Chinese worker ≈ 5 Mexican workers
He remarked that the work output of about five Mexican workers could match that of a skilled, motivated Chinese worker.
That sounds like an exaggeration, doesn't it?
He continued, saying that in Mexico, it's common for employees to spend half an hour or even an hour in the restroom. Add to that their generally slower pace of work, and the overall picture makes sense.
For example, if you want to transfer funds for investment, you'll need a corporate bank account. To open a corporate account, you'll need a company. To start a company, you'll need a work permit. To apply for a work permit, you'll need a Mexican work visa. Every step of the process is time-consuming. Completing all of this in six months is considered fast; taking two years is not unheard of.
So, if you're considering investing in Mexico, you need to get used to the slower pace. The key to adapting? Start early.
If you're contemplating (or hesitating) about setting up a company in Mexico, do it now. If you've had the thought, get the company set up first. Once established, you can execute your investment plans whenever you're ready. But if you wait to set it up, trying to do it on short notice will be extremely difficult. Only then can you begin setting up your factory.
Mexico offers permanent land ownership
In the classic sense, the three fundamental means of production are labor, land, and capital.
When you set up a factory in Monterrey, essentially, you're bringing Chinese capital to combine with Mexican land and labor to create value. Once your investment is in place, your next step is to secure land.
You can, of course, purchase land directly from the Monterrey government. In Mexico, land comes with permanent ownership—there is no 50-year limit as in some other countries. It's true ownership, not just a long-term lease.
However, purchasing land directly as a Chinese investor can be complex. Often, the land is undeveloped.
You'll need to level the land and ensure it has access to water, power, and road. In China, this is commonly referred to as "三通一平" (three connections and one leveling). As a foreign investor, handling this process alone can be quite challenging.
[Baiguan Note: Three connections and one leveling:
Water connection refers specifically to the availability of water supply.
Power connection refers to the availability of construction electricity at the site, making it suitable for building work.
Road access refers to the external roads being paved up to the entrance of the construction site, allowing vehicles to enter and exit.
Land leveling refers to the building site being mostly leveled, requiring minimal manual adjustments to make it ready for construction.]
Alternatively, you can consider entering one of Monterrey's many industrial parks—there are more than 200 of them, ranging from large to small. These parks have already transformed raw land into fully serviced plots.
Some of these industrial parks are developed by Chinese companies and feature Chinese restaurants (though they can be quite expensive). Many Chinese factories are clustered in these areas.
A few years ago, land in these parks cost around $6 per square meter. But as more companies venture into Mexico, prices have risen by over 150%. You have the option to buy land in these parks and build your own facility or rent pre-built factories, allowing you to move in and start operations quickly.
Next, your focus will shift to hiring local labor and beginning production.
The stubbornness of Mexican workers
Capital comes from China. The land is Mexican. But what about labor?
Mexico has a "Mexicanization" requirement: for each Chinese work visa, there must be at least nine local Mexican employees. So, it's impossible to staff your entire operation with Chinese workers. You'll need to rely heavily on Mexican employees. Even without this requirement, for factories that need hundreds of workers, bringing all staff from China is simply not feasible. Mexican work visas are incredibly difficult to obtain.
Therefore, understanding the characteristics of Mexican workers is essential. Their most defining trait is that they are "stubborn" in a very particular way.
Take this example: First, insert the sponge into the sofa cover, adjust the four corners, zip it up, and finally beat it hard to make it smooth. During a tour of Jason's Furniture, we could hear, from the workshop outside, the constant thumping of a Mexican worker striking the sofa as hard as he could.
"Stubborn" here isn't a criticism. As the company representative explained, as long as the instructions are clear, Mexican workers perform their tasks with dedication. In fact, they are excellent for quality control—because if something isn't up to standard, they won't compromise.
So, if Mexican workers seem less efficient, it may not be due to laziness but rather poor management by the company.
And how should they be managed? Before answering that, we need to talk about the wage structure of Mexican workers.
2,500-3,000 pesos a week
We often talk about China's labor cost advantages, but in reality, Mexican workers' wages are now comparable to those in China. In Mexico, wages are paid weekly, typically around 2,500 to 3,000 pesos, which converts to about 5,000 RMB per month—"roughly the same" as in China.
Where Mexico differs significantly from China is in how wages are distributed.
In Mexico, paying workers by piece rate is not allowed; wages must be based on hourly rates. Earning 2,500-3,000 pesos a week works out to about $3 per hour. This means that, in Mexico, workers are paid $24 a day regardless of their output.
Furthermore, under the USMCA (United States-Mexico-Canada Agreement), one key condition for Mexico's tariff-free exports to the U.S. is fair treatment of workers. Products sent duty-free to the U.S. must be made under conditions that pay workers a "fair wage."
Today, Mexico's minimum wage still falls short of this "fair wage" standard, which is why the country has been increasing minimum wages by around 20% annually to gradually meet USMCA requirements.
While this is undoubtedly good news for workers, it also means that labor costs are rising rapidly every year.
So, how do you deal with this? You must seek efficiency through better management.
Boosting productivity with cola rewards
How do you increase efficiency through management? By bringing the management expertise of the "world's factory" to Mexico.
Mr. Wan, the manager at Jason's Furniture, explained that his background in China was in "lean manufacturing." Upon arriving in Monterrey, he spent two weeks on the shop floor and quickly identified numerous areas for improvement.
For instance, placing materials within easy reach. Or introducing friendly competitions with cola as rewards.
Wait, what? Competitions with cola?
You might not know this, but Mexicans love Coca-Cola. To what extent? To an almost unimaginable degree, on a global scale. The average Mexican drinks one 500ml bottle of Coca-Cola every day. In some areas, consumption is so extreme that people drink up to seven cans a day, to the point where local water supplies have become insufficient.
So, cola makes for an excellent reward in Mexico. Organize teams of workers, run competitions, and reward the winning team with Coca-Cola—productivity skyrockets.
By applying lean management principles and continuously improving our operations, we've significantly boosted efficiency. Previously, it cost nearly 2,000 pesos in labor to produce a single sofa. Now, we've reduced that to 1,600 pesos per unit without compromising quality. That's a reduction of almost 400 pesos per sofa, greatly enhancing our competitiveness.
In this way, management is the enduring competitive moat. What can we bring to Mexico? It's our management experience.
However, even with these improvements, the cost of running a factory in Mexico remains higher than in China.
Why?
Going overseas isn't cheaper; it's actually more expensive
Because of supply chain inefficiencies.
When Chinese companies set up factories in distant Mexico, it's largely to benefit from the U.S.-Mexico duty-free agreement. Take Hisense's Monterrey plant—over 70% of its output is destined for the U.S.
However, U.S. duty-free access to Mexican-made goods comes with a catch. Beyond the requirement for "fair wages," there's also a mandate for local production. What does that mean? A certain percentage of the product's value must be created locally, in North America. This can be achieved either by sourcing raw materials locally—such as leather, foam, or hardware — or by employing local labor.
Otherwise, you can't ship an entire mattress from China to Mexico, slap on English-language packaging, claim it's "Made in Mexico," and expect to benefit from duty-free treatment. That would nullify the U.S. tariffs on Chinese goods (which reach 200% on mattresses).
So, what's the required local content ratio? According to Mr. Liu, the manager of Hisense's plant, for many home appliances, it's 50%, while for automobiles, it's as high as 75%. In other words, more than half the value of your product must be created in Mexico (through materials and labor).
However, Mexic's local supply chain can't compete with China's. Many raw materials are not only of lower quality but also more expensive than in China. Yet, due to the "local production" requirement, you have no choice but to buy them.
As a result, setting up a factory in Mexico often doesn't reduce costs. In fact, your final product is likely to be more expensive than if it were made in China.
Going overseas hasn't made things cheaper; in fact, it has become more expensive.
So, what can be done?
Higher costs demand higher-end products
When Chinese companies first arrived, the initial calculations relied on simple "addition and subtraction" – balancing rising production costs with lower tariffs.
Yes, production costs may have increased, but saving on the hefty tariffs applied to direct exports from China to the U.S. seemed worth the trade. As long as the cost savings outpaced the tariff burden, it appeared to be a profitable move.
But here's the catch: wages for Mexican workers will inevitably rise, and production costs will continue to climb. One day, math might not add up so easily anymore.
What then?
Mr. Wan, the manager at Jason's Furniture, says it took a while for them to find their path.
Their solution is to focus on making more complex, and therefore more expensive, products.
We realized that the real profit doesn't come from merely playing the "cost minus tariff" game. While that worked initially, it's not sustainable in the long term. The real path to success lies in the "cost versus value" equation.
The key is to find products that are more challenging to produce and carry higher price tags in the U.S. market. Products that Mexican factories struggle to make, but that we, with our expertise, can. This allows us to sell at higher prices and thrive—perhaps even outperform.
The manager, Mr. Liu from Hisense, gestured to a grill and said, "Mr. Ren, look at this product. It was designed in Atlanta and manufactured right here in Monterrey. This is something unique to the U.S. market. It doesn't exist in China because it caters specifically to American demand.
We aren't simply exporting our existing capabilities to the U.S.; we're importing our expertise to create customized products for the U.S. market."
This is the essence of globalization. In the end, globalization leads to localization.
Because of this, today, 43% of Hisense's revenue comes from overseas markets, solidifying its status as a truly global company.
To the pioneering Chinese entrepreneurs in Monterrey, your hard work has paved the way for others.
As we left the industrial park, we headed straight for Monterrey Airport. Finally, we headed back home. Sitting in the car, a wave of pride washed over me.
No matter how turbulent the world may become, no matter how tenuous international relations might be, we—China's industrious and courageous people—always find a new path forward. Even though this new path may be fraught with challenges.
To the brave pioneers in Monterrey, your efforts have spared future generations of Chinese entrepreneurs many detours. Your courage has illuminated the way for those who follow.
Will the world get better?
Yes, it will. But the world doesn't improve by itself. It only gets better through hard work—through your hard work.
So, despite the muddy, bumpy road of overseas expansion, remember: at the end of that dimly lit path lies a blossoming future—our efforts will eventually bear fruit.
Yes, they always will.
My take
Five years ago, I journeyed to Mexico, where in the Mummy Museum of Guanajuato, I encountered the mummy of a Chinese girl, a relic from the late 19th century. Her presence was a shock—a silent emissary from across an ocean and a century. How did she travel such a vast distance to Mexico? What was her life like, and what strange series of events led to her natural mummification and display in a museum, allowing our paths to cross?
Recently, I read the book "Chinese among Others: Emigration in Modern Times" by Philip A. Kuhn (an American historian of China), which chronicles the plight of Chinese laborers abroad, facing discrimination and treatment akin to slavery from the 16th to 19th centuries. The image of that girl came rushing back, evoking a profound sense of sorrow. It led me to ponder the inevitable exploitation and violence that follows where there is an imbalance of power. But that is probably another topic beyond the scope of this article...
In that book, Kuhn also presents a renowned "Corridor Niche Model" to explain the societal structure of Chinese expatriates. In essence, the model describes the invisible pathways formed by Chinese emigrants through kinship and regional ties, facilitating cultural, economic, and social exchanges. These corridors nurture "niches" in host countries, preserving Chinese cultural ecosystems, and in homelands, they manifest as "hometowns of emigrants," influencing local development and governance through remittances and philanthropy.
Perhaps both generations of Chinese venturing abroad sought greater wealth and opportunity, sharing diligence and resilience. Yet, their approaches to pursuit were fundamentally distinct.
Chinese emigrants of the 16th to 19th centuries had to adapt to new environments while preserving their culture. Some of them maintained relationships with local politicians for safety, although these were often tenuous. Their culture was insular, deeply connected to their homeland, forming tight-knit communities based on region or dialect, supporting and nurturing one another. Even nowadays, in places like New York's Chinatown, traditions lost in China's modernization are preserved more intact. They lived quietly, unobtrusively, their existence to bolster local industries, seen as others, lacking agency.
In contrast, today's Chinese entrepreneurs abroad are not just contributors of invisible labor but creators. They are no longer the "other" but possess an agency backed by evident strengths, such as complete supply chains, manufacturing prowess, and innovative business models. They are no longer a rigid, closed group; they are flexible, able to integrate their advantages into their host countries, and even develop localized products for specific markets, commanding a premium.
Ultimately, I don't wish to dwell on nationalistic confidence. What I mean to highlight is that amidst a world power stirring up anti-globalization, the Chinese seem to maintain an open stance. Facing the rising walls across the ocean, they are embracing an even broader world.
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