Over the past year, the automotive industry’s expansion into Mexico has received widespread attention. However, it cannot be overlooked that the home furnishing industry’s venture into Mexico is also becoming a significant phenomenon.
Chinese home furnishing companies producing and selling sofas, mattresses, flooring, and cabinets have collectively entered the Mexican market. Chinese home furnishing companies are frequently moving to Mexico, attracting significant attention.
Many Chinese home furnishing companies, such as Jason Furniture, Elegant Home, Keeson Technology, and Man Wah Holdings, decided to invest in factory construction in Mexico.
According to media reports on January 31, 2024, Man Wah Holdings, specializing in sofas, mattresses, and smart home sectors, officially opened a new factory in Monterrey, Mexico. The Man Wah factory in Mexico covers a total area of 250,000 square meters, with the currently used manufacturing area being about 100,000 square meters.
In February 2024, the expansion project of Jason Furniture in Nuevo León, Mexico, was also officially completed. According to reports by Mexican media, the expansion project has a total investment of 150 million U.S. dollars and is expected to create over 4,000 new jobs.
The Industrial Clustering Model
Driven by the strategic location for accessing the United States market, Chinese home furnishing companies expanding into Mexico prefer a concentrated industrial clustering approach.
The companies mainly focus their factory establishments in Monterrey, Nuevo León, Mexico. The choice of Monterrey is primarily due to two reasons:
Firstly, the factors of distance and cost. Monterrey is an industrial stronghold in Mexico, close to the US-Mexico border, with transportation cycles ranging from 3-12 days, significantly saving on transportation costs and handling 80% of the freight trade between the US and Mexico.
Secondly, Everything in Nuevo León revolves around supporting industry and commerce, with an advantage in integrating the industrial chain. It can connect investing companies with upstream and downstream supply chain resources, emphasize education more, and is safer.
And Monterrey has industrial parks, presenting an optimal path for market expansion. Mexico allows foreign companies to operate in industrial parks at low cost and high efficiency, facilitating exports to the US and other markets. Industrial parks are the best option for small and medium-sized enterprises looking to relocate their supply chains closer to home, offering shelter services through private company cooperation.
Opportunities in the Blue Ocean
Like the automotive and other manufacturing industries, most Chinese home furnishing companies choose to set up factories in Mexico based on entering the US market via Mexico and reducing tariff costs.
For home furnishing companies, there’s another crucial reason: the current Mexican home market remains a blue ocean.
According to statistics from the Mexican Timber and Furniture Industry Suppliers Association, economic activity in this sector is one of the most dynamic in the country’s manufacturing industry, growing at a compound annual growth rate of 5.17%, reaching 2.17 billion dollars by 2028. Export amounts are increasing at a rate of 4.2% per year and are expected to reach 2.2 billion dollars by 2025.
Mexico has become a hub for the North American home furnishing industry. Today, Mexico is the largest importer of parts, appliances, and home furnishings to the United States.
The North American market will be the leading market for Mexican residential furniture and cabinet products, especially in the United States. Other countries with steadily increasing demand include Canada, the United Kingdom, Spain, and neighboring countries like Guatemala.
Although Mexico still needs to develop a complete supply chain for the home furnishing industry, as Chinese companies going overseas stabilize their footing in Mexico, there will be an increasing number of Chinese component manufacturers setting up factories nearby to supply them. Therefore, the entire ecosystem of Chinese home furnishing companies will shift to Mexico.
Challenges
Despite the Mexican market being highly praised within the Chinese home furnishing sector, initiating a factory and accomplishing stable production and sales is a complex and extensive process.
The price of raw materials is high locally. When combined with labor and other costs, the comprehensive costs of establishing a factory are typically higher than in China.
Additionally, labor efficiency is lower. A job requiring one worker in China might need two people or two shifts in Mexico, leading to increased indirect costs.
Moreover, compared to exporting goods, home furnishing companies building factories overseas will inevitably face higher entry barriers, including more complex cultural, policy, and legal environments, requirements for financial strength, and increased organizational and management capabilities, with a long cycle for project commissioning and ramp-up of production capacity.
Keeson Technology’s annual report 2022 shows that in 2021, the company’s factory production line in Mexico was officially put into operation and achieved production ramp-up. At the beginning of 2022, the company’s sponge factory project in Mexico was ready. At the end of 2022, the factory finally achieved average operational production. However, during a visit in October 2023, the company stated that the Mexican factory’s production capacity has yet to be fully released due to regional and cultural differences.
Therefore, it is feasible and advisable for many small and medium-sized enterprises to enter Mexico gradually and measuredly. Transitioning from a China-based supply chain to a North America-based one is challenging.
