Amero or the future of the Supply Chain

One of my favorite conspiracy theories of the 2000s decade was the Amero, the name of a proposed single currency for the US, Mexico and Canada created with the purpose of competing with the influence of China in the new world economy. The idea of additional institutional arrangements to deepen the integration of the three countries after the NAFTA seemed unlikely back then; today a different kind of economic integration is underway. 

The supply of cheap manufacturing cost from China may have reached a limit. The strong appreciation of the Yuan - which is only going to get stronger in the near future (Barboza 2010, Goel et. al. 2008) -  alongside rising costs of labor and transportation have forced manufacturing companies to reevaluate the idea of offshoring (Economist 2013).

The new exodus is taking many companies back to the US, and also to its neighbor countries that lost momentum with the rise of China in the late 90s. An example of the tendency is Bombardier, the third largest airplane manufacturer in the world, which opened a plant in Queretaro, Mexico where the Learjet 85 is currently manufactured. Assemblage of the executive jet - using components from USA, Canada and Mexico - is done at a lower cost in Mexico before the final good is exported back to the US and Canada thanks to the NAFTA treaty (Casey 2011). But Bombardier is hardly alone in the wave of manufacturing companies that are taking advantage of reduced costs and closer economic integration in the North American Region. General Electric has its largest research and design center outside of the U.S. and Canada in Mexico, with 1,300 engineers working on projects like the GEnx turbine used on Boeing's 787 Dreamliner and the Airbus A380 (Casey 2011). And the new advantages of this supply chain are not only being exploited by large companies. Many startups and middle size companies are also benefiting from the reduced cost of a diversified but regional supply chain (Anderson 2013). 

 

A few years ago the supremacy of China as the place to manufacture in the world seemed unchallenged. Today the mix of logistics and labor costs in the North America region could be the prelude of a new manufacturing era (without even taking into consideration the shale gas promise of reduced energy cost). Far from being a conspiracy, this increased economic integration could be the future of supply chain for many industries waking up from the East Asia dream.

References

Anderson, Chris (2013) Mexico: The New China, New York Times, January 26, available at: http://www.nytimes.com/2013/01/27/opinion/sunday/the-tijuana-connection-a-template-for-growth.html?_r=0

Barboza, David (2010), “Supply Chain for iPhone Highlights Costs in China”, New York Times, July 5.

Casey, Nicholas (2011), “The New Learjet…now Mexican Made,The Wall Street Journal, July 29, available at: http://online.wsj.com/article/SB10001424053111904233404576458561238682634.html     

Goel, Moussavi, and Srivatsan (2008), “Time to Rethink Offshoring?”, McKinsey Quarterly, Winter 2008, pp. 32-35.

The Economist (2013), ‘Reshoring manufacturing: Coming home’, The Economist, January 13, available at: http://www.economist.com/news/special-report/21569570-growing-number-american-companies-are-moving-their-manufacturing-back-united