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While manufacturing companies, predominantly from the United States, have been slowly moving production to Mexico over the past forty years, manufacturing in Mexico is now growing at the fastest pace in history. No longer is it just companies from the United States, as multinational companies from virtually every country in the world are considering a manufacturing footprint in Mexico.
It all starts with the low cost of well-trained labor in Mexico. Relative to the United States, and most other developed countries, direct labor in Mexico is approximately seventy percent less expensive. This competitive labor cost is the driving force behind the success of Mexico manufacturing.
However, it is not just inexpensive labor that is contributing to the explosive growth of manufacturing in Mexico. Mexico has a large, highly educated workforce that can be compared to virtually any developed country in the world. In fact, Mexico now graduates more engineers on an annual basis than the United States. With multiple generations of manufacturing experience, Mexico also has a large pool of talented operational and professional managers who are helping sophisticated companies expand well beyond their original expectations. In fact, certain cities in Mexico, such as Tijuana, now have the largest concentration of manufacturing in specific industries, such as medical devices, across all of North America.
Mexico’s proximity to the United States and Canada is another major factor to the growth of manufacturing in Mexico. After factoring in the cost of transportation and rising wages in Asia, Mexico is generally a lower-cost manufacturing option for the North American market. In addition, corporate executives and operational managers can visit their Mexico operations far more regularly and without having to fly halfway around the world. Companies are saving hundreds of thousands of dollars in lost productivity due to global travel, as well as improving the work/life balance of their management teams.
The growth of manufacturing in Mexico can be seen across virtually all industries. While the aerospace, electronics and medical device industries have been steadily growing in Mexico, it is the automotive industry that is contributing most to Mexico’s recent growth. Companies such as, Nissan, BMW, Audi, Honda, Mazda, Ford, Toyota and Daimler have all either built or are in the process of building new assembly plants in Mexico. The expansion of automotive companies in Mexico has attracted over 500 new automotive suppliers to Mexico from around the world in only the past 5 years. Automotive manufacturing in Mexico will soon represent the largest industry in Mexico and establish the country as one of the top automotive exporters in the world.
All of these industries could not be successful in manufacturing in Mexico if it were not for the Mexican government’s participation. First, Mexico is known for its aggressive trade agreements with the rest of the world. While NAFTA is certainly the most known and widely used trade agreement in Mexico, Mexico has over forty-four other trade agreements, which enables shelter manufacturing in Mexico as well as allowing foreign companies to import raw materials and components, tax and duty-free.
In addition, Mexico has created special programs and decrees to attract foreign investment. The most widely used of these programs is the IMMEX, or formally known as “Maquiladora,” program. Under IMMEX, foreign manufacturers can import raw materials and components, almost always tax and duty-free, on a “temporary” basis, with the intent to export those materials as part of the finished goods. The IMMEX program also enables foreign companies to import machinery and equipment duty and tax-free, with the necessary permits. Finally, companies manufacturing in Mexico under the IMMEX program enjoy special income tax and fiscal treatment, helping to reduce overall operating expenses.
The Mexican government has also made a strong commitment to improve the infrastructure throughout Mexico to help manufacturers operate without disruption. One area this can be seen is the reliability of the electrical grid in Mexico. For the most part, electricity in Mexico, especially in the major industrial cities, is equally reliable to that of the United States. While the cost of electricity is typically higher in Mexico than most U.S. cities, Mexico’s recent energy reform of 2015 demonstrates the government’s continued effort to make Mexico more competitive.
Another area where Mexico has invested in their infrastructure is the rail and highway systems. Trucks can now make convenient trips from central Mexico to virtually any border city on a federal highway system. Commercial railway is also widely available and used by companies manufacturing in Mexico.
Regardless of the industry, Mexico is attracting companies from around the world who recognize the many benefits of manufacturing in Mexico. As labor and transportation costs continue to rise in developed countries, Mexico manufacturing is becoming the most cost-efficient option, especially for servicing the United States and Canada. Mexico is positioned to become one of the world’s largest exporters to the United States within the next decade.
Manufacturing companies looking to relocate their manufacturing should contact NAPS today to learn how we can help.
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