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July 28, 2022

Will Mexico become the next “Vietnam”?

The trade war between China and the US has been lingering for years. Many Chinese companies relocated parts of their production to Vietnam to avoid paying the high duties. The influx of such large mainland China factories, not just woodworking, caused a shortage of workers, especially in Vietnam’s south-eastern Binh Duong province.

Many woodworking factories rely on imported raw materials from South America and China. The Covid pandemic severely disrupted the supply chain of such material, and the high sea-freight costs hampered the export of finished goods.          

Another factor is the carbon footprint awareness; European and American buyers have started to question the complicated supply chain in many industries. Does it still make sense to ship American rough-sawn timber to Asia and finished furniture and other timber products back to the USA?  

Mainland Chinese business owners can make fast investment decisions which have accelerated the productivity in China during the last 20 years. Many Chinese businesses have invested not only in Southeast Asia but even in locations near the raw material source, such as Africa, where one can find Chinese investments across the continent.

Is Vietnam losing its status as a preferred manufacturing hub? And if yes, where is the next destination for Chinese furniture factories? Mexico seems fast to become the next location, and many Chinese upholstery manufacturers have set up production in Mexico. Upholstery furniture is bulky, and few units only can be loaded in a container, so freight costs are a major cost contributor. Mexico has many advantages; cheap labour, proximity to raw materials from countries of origin such as South and North America and of course, is situated near the largest market for finished goods, the USA. Mexico is neither affected by the US import tariffs nor Covid-related sanctions. Mexico even enjoys duty-free for those factories set up near the Mexican-US border.  Mexico ranked 6th on the list of leading furniture exporting countries with U$ 6 billion in 2020, whereas Vietnam ranked 4th with U$ 11 billion, according to Statista. More production will likely shift from Asia to Mexico.

Posted in Blog