Article

Manufacturers are looking to Mexico — here is why

Authored by Angel Ramirez

During the last few years, positive changes in Mexico’s economy have positioned the country to become a manufacturing powerhouse. Because of this, foreign direct investment (FDI) into Mexico is at an all-time high and companies from virtually every country in the world have or are considering a manufacturing footprint in Mexico.

Growth is taking place within virtually all sectors. Advanced technologies, aerospace, automotive and medical devices industries have been steadily expanding, with the automotive industry seeing the most   exponential growth. In just the last five years, some of the biggest automakers, including Audi, BMW, Kia and Toyota, have built new assembly plants in Mexico. Other automakers that long have had a Mexico presence – like GM, Fiat Chrysler, Ford and Nissan – have increased their size and manufacturing capabilities. Following suit, automotive suppliers are setting up shop or expanding in Mexico. Virtually every big automotive tier one company has a footprint there.

Why the move to Mexico? The following are the main drivers that make Mexico a place where manufacturers should have a manufacturing footprint to compete in the global economy.

Skilled and available workforce

Mexico enjoys a low unemployment rate, a highly educated workforce with multiple generations of manufacturing experience, and an economically active demographic with a median age of 30 years. Today, Mexico is second only behind Canada among countries with the largest percentage of employment per capita in creative industries. Mexico also graduates more engineers per capita on an annual basis than the United States. In the manufacturing sector, the average wage is about $2 an hour in Mexico, versus about $20 per hour in the U.S. This pool of skilled workers in Mexico is a benefit for foreign companies looking to reduce labor costs but keep a high level of quality standards for their products.

Sophisticated manufacturing capabilities

About 27 percent of Mexico’s total exports are of medium- and high-technology products and components, higher than the percentage of the same products exported by Germany or South Korea. The country is ranked 20th in MIT’s and Harvard’s Atlas of Economic Complexity. The Atlas measures the economic complexity of a country based on the diversity of exports it produces and the number of other countries that can produce those exports. For comparison, China ranks 19 and the U.S. ranks 12.

Solid export platform

Mexico is known for its significant network of free trade and economic cooperation agreements, making it a gateway to a large part of the world’s consumer market. While the current NAFTA (soon to be replaced with the updated USMCA) is certainly the most widely used trade agreement in Mexico, the country also has free trade agreements with 45 other countries beyond Canada and the U.S.—more than any other country in the world. Mexico also has preferential access to many other counties under its six economic complementation agreements.

Mexico is further embracing free trade. New treaties like the TPP 11 and Mexico’s Pacific Alliance with Colombia, Chile and Peru now allow complete freedom in the movement of goods, services, capital and people in between these countries – mainly tax- and duty-free.

Logistics, transportation and connectivity

Mexico is making strides to move cargo more cheaply and to limit transportation time. The last two federal administrations in Mexico invested heavily in improving the country’s infrastructure in all forms of intermodal transportation including seaports, rail and highway systems. Any product moves easily inside of Mexico from its manufacturing hubs to one of its many ports on the Atlantic, Pacific and Gulf Coasts for final export. Additionally, Mexico ranks third in the world with most international airports and has 67 border crossing points. Factoring in the cost of transportation and rising wages in Asia, Mexico is generally a lower-cost manufacturing option.

Located in North America economy

Mexico’s proximity to the U.S. and Canada markets is another advantage. The combined size of the economy of all three countries makes North America the biggest economic market block in the world.

Shared time zones are an additional benefit for American, Canadian and European companies, allowing corporate executives and operational managers to communicate with or visit their operations far more regularly, saving hundreds of thousands of dollars in lost productivity due to longer global travel.

Pro-business programs

Mexico has many special programs to benefit manufacturing export companies. The most widely known of these programs is IMMEX (formally known as the Maquiladora program). Under IMMEX, foreign manufacturers can import raw materials and components, usually tax- and duty-free, on a “temporary” basis, with the intent to export those materials as part of finished goods. The program also enables foreign companies to import machinery and equipment duty- and tax-free, on a temporary basis. The benefits and limitations of this program have changed in recent years, so organizations should seek advice from a Mexico trade consultant if they have questions about how IMMEX may affect their business.

Is Mexico right for you?

Mexico is a great option for companies that want to reduce production costs and increase access to world markets. As with any international business foray, you will need to address certain challenges such as language and cultural barriers, and employee and trade regulations, to name a few. Indecision, fear of complexity and misperceptions about costs, however, should not keep you on the international sidelines when you could be increasing production, realizing new revenue streams and strengthening your overall enterprises.

Connect with us

When it comes to building a more productive and profitable future, we listen to your global growth questions as well as offer a few of our own. It all starts with a conversation.

For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.

Next up

Tax tips: what software and technology startups need to know