I had difficulty writing this portion because a discussion of the remaining advantages tends to force a comparison between Mexico and Canada. I did not want this post to be a sourcing comparative of Mexico and Canada because I don’t feel it’s fair to either. But as I said, it is difficult to discuss the benefits of sourcing in isolation. In the interest of avoiding controversy I will attempt to itemize my own biases so that you can follow the discussion through my filter and make your own decisions independently.
Culturally and socially, I have greater affinity with Mexico. I live on the southern US Border; until last August, I lived one-quarter mile from the border. While I am Anglo, much of my identity is closer to Mexican than American as my father married a woman of Mexican heritage when I was a child (I was raised in Europe). I have many family members who are Mexican, I have more friends who are Mexican or of Mexican descent than I have Anglo friends. I speak Spanish with native fluency and have traveled extensively throughout Latin America. Considering that I do not have the same burdens as most of you with regard to access, communication and a shared cultural history, it may seem contradictory were you to know that if I were to manufacture, it would be in Canada rather than Mexico. I have very little personal experience with Canada but my reasons have more to do with the sort of product in which I specialize than anything else. It is nearly impossible to locate a contract facility in the US that could do this sort of work and Canada has the trained labor force that can render it well. Similarly, if I were to make tee-shirts, boots or blue jeans, I could manufacture in the United States (El Paso TX). If the industry here deteriorated to such extent that I could no longer locate a contract facility for those products, I’d go to Mexico. I want you to understand that the baseline of my choices is related to my apparel experience rather than any emotional or social ties I have.
Still, product, cultural, language and social issues aside, sourcing in Mexico is not something I could freely advise anyone to do -it’s not for the faint of heart. I’d think managing that would be difficult at best if you have never lived abroad and lived as the natives do. If you are concerned about wages and working conditions of those who’d make your products, you will have to be hands-on, thus the issues of accessibility are primary. Conditions in Mexico are such that you are most likely to need the services of an intermediary and dilution of your ethical principles is all but inevitable. Anyway, these caveats in place, I continue discussing the benefits of sourcing in Canada.
Proximity and accessibility
Canada has geographical advantages. The main hub of manufacturing lies in Toronto which is an eight hour drive from New York. Many are surprised to know that Toronto is the fifth largest city in our northern hemisphere, preceded only by Mexico City, New York, Los Angeles and Chicago. With over 955 non-stop flights per day on 135 routes to and from 59 Canadian airports, national air infrastructure is robust. In fact, Air Canada has just started an unlimited service giving subscribers the freedom to fly as often as they wish to more than 100 destinations served by Air Canada and Air Canada Jazz in Canada and the continental United States. In short, traveling conditions and infrastructure in Canada is comparable or better than in the US. Mexico is another story in both accessibility and conditions. Unlike Canada, many Mexican contractor locations are not readily accessible by air so you’ll have to drive which brings up a whole host of issues one does not wish to discuss, one being the requirement of “gratuities” to effect the smallest of transactions and another being safety.
The significance of national infrastructure, policy and apparel industry integration is similarly developed. The City of Toronto has an apparel/fashion economic development section to help facilitate the placement of small to mid size contracts. This service is highly integrated with Apparel Ontario which is in turn, integrated with the Canadian Apparel Federation. In fact, registering at CAF also gets you into Apparel Ontario. Due to this high level of integration it is not surprising that most producers in Canada are fully capable of providing full package service rather than just CMT (cut, make & trim) contracting. Most maintain strong mill affiliations with several notable vertical mills, both in Canada and the US. The Canadian industry has many resources for all the trims and findings one would require including YKK with 7-10 day service. One label and hang tag manufacturer in Toronto (Laven Labels) turns most orders in less than a week. In fact, Laven Label has been so successful with regard to turnaround that it’s known they “pick off” Paxar customers in the US. Laven Label is known for trims, logo trims, hang tags and respected for knowing the meaning of the term hanger appeal.
Owing to the benefits of proximity, accessibility and conditions of national infrastructure, response time is greater. While production lead times vary, turn around time of 4-8 weeks is the norm. David Rushton describes most factories as capable of full sample development, considering it an integral part of conducting business. Many plants are Gerber or Lectra literate and most shops have in-house cutting capabilities. If you’re new to the business, the latter may seem an unimportant detail but it would be if you knew that many apparel companies in the US no longer do their own cutting since the cost of operating floor-shop space is about $25 a square foot (in NY). Therefore, companies in Canada operating their own cutting rooms provide yet another advantage. David says that many factories are set up to handle smaller flexible production requirements so it is an ideal set-up for small to mid size clothing brands to produce there.
David mentions that sourcing response time is quick and precise as many mills have realized that in order to address the changing business environment and the massive shift to offshore production, minimums and turn times needed to be reworked. He adds that those who have not done so already are either out of business, or dying a slow death. Lastly, he says the survival of Canadian manufacturing will depend upon on developing along with new and emerging US clothing brands (DEs).
Lower transaction costs
A transaction cost is defined as a cost incurred when making an economic exchange. Apologies to Coase aside, some of these costs are things like broker fees and tariffs but can also refer to transactions such as bribes or gratuities (often required in Mexico and the Far East). In addition, David Rushton mentions lower transaction costs with respect to “off loading”. Off loading refers to the requirement that trucks coming in from Mexico are required to unload their goods within 15 miles of the US border and reload their goods onto a US carrier; the Mexican carriers are not allowed to proceed further into the US interior. Unlike Mexican trucks, inbound Canadian trucks are not required to “off-load” upon entry into the US; Canadian trucks are unrestricted. Now, if you live somewhere in the Midwest and have never been to this part of the country, I can understand if you think that restricting Mexican trucks is unfair or racist and while I’d never say there is no element of that, I can emphatically tell you it’s an issue of road safety. I’m not saying that all Mexican trucks are dangerous or poorly maintained but many of them are. Until such time that the Mexican government can eliminate the practice of bribery to certify vehicles and implement professional standards of maintenance and upkeep of commercial vehicles to comply with standards imposed on US companies, I think it’s a wise policy. I can’t tell you how many fatal accidents we have in El Paso each year due to poorly maintained commercial vehicles from Mexico; it’s a real crisis around here. By poorly maintained I mean that bumpers, tires and body panels fall off while they’re driving down the road. Anyway, the lowered transaction costs associated with off-loading amount to about $300 a load. If you use a Canadian contractor, that’s $300 you won’t have to pay to put your goods on a US commercial carrier.
Lower shipping costs
It only stands to reason that shipping costs are greatest the further you get from the goods. Both Canada and Mexico have the advantage over goods that must be shipped on the water. Goods imported from the Far East have higher shipping costs as they incur the costs of on the water in addition to transcontinental shipping once they arrive at port. With the recent spike in fuel prices, many in the industry are reconsidering the direct costs of where their products should be produced. Another way that Canada offers an advantage with reduced shipping costs is with respect to fabric sourcing. If you can use Canadian or US fabrics under NAFTA, the costs of shipping your goods around is that much lower.