Why Companies Choose to Manufacture in Mexico – Shifting Economics

October 17, 2014

There have been economic shifts on a worldwide scope over the past number of years. Global production has been no exception, and these shifts produced a new top producer in the manufacturing industry.

Even in industries such as electronics, which are traditionally dominated by China, there has been a significant shift towards factory development in Mexico. And with a closer look, it’s not hard to understand why. With lower energy costs and more free trade agreements, companies manufacturing in Mexico are flourishing at increasingly high rates in places such as Juarez, Guanajuato, Saltillo and many other places across the country.

Government incentives, and already developed infrastructure have created a culture of numerous industry clusters, specializing in the ins and outs of the industries they work with, and thusly enticing companies looking to expand their manufacturing, as well as their bottom line. And the range of these industry clusters manufacturing in Mexico is vast, from hula-hoops to headsets and from medical supplies to automobile and aerospace components.

Places like Tijuana, Mexico offer plenty of industrial space readily available in locations close to multiple heavily trafficked seaports, and even boast having a high percentage of English-speaking workforces available.

Transnational companies looking to serve both the US and Latin-American market have the backing of BCG studies showing that both investment and production plants relocating to Mexico is a positive for not only the company itself, but for both US and Mexican economies.

For manufacturing in Mexico, location means more than just proximity to border and seaports. The temperate climate in many areas can lead to lower use of heating and cooling in the course of a fiscal year. On top of that, compared to China, not only is electricity cheaper, but natural gas costs are anywhere from 50 to over 150 percent less, with prices closely aligned with the United States.

With free trade agreements not only with the U.S., Canada and Japan, but over 40 other countries, Mexico boasts having gone from a relatively closed economy, to one of the main trading nations in the world in less than 20 years.

This overarching move of more manufacturing facilities in Mexico as opposed to China has positive effects for the U.S. economy as well. A boost in a neighboring economy has much more effect than a boost in an economy over 7000 miles away. Neighboring companies have a natural tendency for shared production. Manufacturing locations in Mexico are much more likely to purchase parts from the United States, creating a snowball effect of prosperity.

Referred as one of the “Rising Stars” by the BCG in The Shifting Economics of Global Manufacturing, Mexico is credited with not only wage growth and increasing competitiveness, but also with sustained productivity. Companies large and small can rest assured that any new locations they open in Mexico will be stable and fruitful plant for years to come.