Why Mexico’s Electronics Manufacturing Is Growing | NAPS
February 23, 2016
Why Mexico’s Electronics Manufacturing Is Growing
Although the global economic crisis affected the electronics industry worldwide, electronic manufacturing in Mexico enjoys rapid growth. Encouraging economic indicators indicate that further growth in the Mexico electronics industry will continue, leading the nation to a full economic recovery and threatening China’s position as a global manufacturing powerhouse.
New foreign investments in Mexico continue to grow as companies find advantages them that help them compete in the global economy. Also, firms with have longstanding manufacturing investments in Mexico plan to expand their presence, paving a way for a new wave of employment opportunities. Such job growth could slow Mexico’s loss of qualified workers to the United States and fuel global growth in the technology sector for many years to come.
What electronics are made in Mexico?
About one-third of electronics manufacturing in Mexico pertains to the Information Technology industry. Factories in Mexico make products that include computers, computer CPU and memory chips, network switches, and routers.
Another 30-percent of electronics Mexico produces are consumer electronics, including televisions and other audio and video goods. Mexico also produces circuit boards, LCD panels, mobile phones, communications equipment and electronic appliances.
A marked increase in the availability of engineering and design specialists support growth in the manufacturing of electronics in Mexico, so technology research and development has become a major export of the Mexican electronics sector. Mexican engineering firms design a substantial portion of electronics in Mexico and around the world.
Among the major companies investing in Mexico technology manufacturing include Foxconn, Samsung, Sharp, Plantronics, Panasonic, and Celestica. A thriving domestic technology industry, including a large computer manufacturing sector, supplies much of the local market in Mexico. Many local firms have formed partnerships with foreign companies, helping to supply markets in Mexico and Latin America.
How much technology does Mexico produce?
Mexico boasts a GDP of more than $1.2 trillion, of which slightly more than 25-percent is from the industrial sector. Although overall GDP growth in Mexico is slow, tech produced in Mexico now grows at an annual rate of 20 percent. This rapid growth is expected to continue at least into the next decade.
Mexico has grown to become the sixth-largest technology producer in the world. The country is the world’s third-largest producer of computers and hosts at least a dozen foreign and domestic computer manufacturers.
The country annually exports more than $70 billion in technology products to the United States. Only China exports more technology to the U.S. than Mexico. As Chinese labor rates continue to increase, Mexico will continue to appeal to the world’s technology companies, ensuring continued production output.
Advantages In Production Costs
As global competition forces technology companies to find ways to cut costs, they increasingly turn to Mexico for solutions. Mexico offers advantages in production costs that make it attractive to many industries, including the electronics industry.
For several years, Mexico has outpaced China by providing lower labor costs, making it possible for companies to produce competitively priced goods in Mexico. Current trends seem to indicate that Mexico will continue to be one of the lowest-priced labor markets in the world, luring many jobs away from Asia.
Companies that move to Mexico can access an educated and experienced workforce that can quickly learn to produce new types of goods. Because of free trade agreements, Mexico has relatively few barriers to foreign investment. Mexico offers foreign companies breaks on taxes and tariffs, as well as incentives for manufacturing investment. These additional benefits keep production costs low and continue to attract new investment from around the world.
Natural gas costs up to 150 percent more in China than in Mexico, and electricity also costs less in Mexico. Lower energy costs in Mexico constitute another reason for the low cost of technology manufacturing in Mexico.
Cheap and fast transportation of goods to large markets in North and South America give Mexico yet another attractive advantage in production costs over China and other emerging economies. For example, trucks haul a significant portion of exports to the U.S. and Canada, reducing shipping costs and time to market. China, on the other hand, relies on slow and expensive ships to carry exports to North America.
In Mexico, government-sanctioned Maquiladoras facilitate foreign investment by providing duty-free and tariff-free imports of the manufacturing materials and equipment. The maquiladora program also bypasses the need for special government authorizations, so foreign companies can have up to 100% investment in facilities they build in Mexico, provided that the firms export finished goods from Mexico.
The Maquiladora program has significantly grown and now accounts for much of the growth in technology exports. Maquiladoras in Mexico employ more than 1.2 million people, a growing population that thrives on foreign investment. New jobs in technology manufacturing account for a major increase in the standard of living in technology-rich regions of Mexico, creating income inequality with the rest of the country.
Manufacturing in Mexico might, ironically, be beneficial for the manufacturing industry in the United States. Exports from Mexico tend to contain up to three times as many American components than the number of American parts included in exports from China.
An Increase In Skilled Labor
Renowned crime and safety issues in Mexico once served as a deterrent to foreign investment. Now, the miniscule cost of Mexican labor makes the move to Mexico almost irresistible for many companies. In fact, disparities in labor costs between Mexico and China might have created the impetus for the global shift of manufacturing to Mexico. Fifteen years ago, Mexican labor cost 58 percent more than Chinese labor. Now, Mexican labor costs cost almost one-fifth less than Chinese labor. Mexican labor, however, is not only cheap: It is educated and skilled.
Once undereducated and inexperienced, the Mexican labor force has made gains in both areas. The maturity of the Mexican electronics industry means that several generations have received the education and training needed to work in modern manufacturing environments.
Overall, the population of Mexico is becoming more educated, and a growing percentage of the population has completied advanced academic degrees. Despite the gains made by the labor force in education and experience, workers still command significantly less equivalent compensation, than workers in other countries, especially when comparisons are based on productivity.
The attractiveness of low-cost skilled workers and proximity to the United States seem to entice companies to root themselves in Mexico, becoming long-term contributors to the growing Mexican economy. A United Nations report recently ranked Mexico as the sixth-best place in the world for foreign direct investment.
Improved Manufacturing Technology
Foreign companies setting up operations in Mexico bring with them the machinery, equipment and intellectual resources they need to produce goods that contain modern technology. Also, Some foreign firms have created joint ventures with Mexican producers, giving domestic companies access to and ownership of needed technology. As a result, manufacturing technology in Mexico has significantly improved. As a result, the quality of finished goods coming out of Mexico has improved.
As manufacturing infrastructure improves, it attracts even more foreign investment, resulting in even more improvements in manufacturing technology in Mexico. Contract manufacturers with modern manufacturing equipment draw even more business into the country, allowing small to mid-sized businesses to enjoy the manufacturing advantages Mexico offers. Almost every indicator seems to suggest that Mexico will lead the world in technology manufacturing for many coming years.