Mexico’s Location and Young Workforce Attract US Manufacturers

May 27, 2015

After enduring exodus of manufacturing companies to China between 2000 and 2010, Mexico’s star rises again as destination for U.S. firms “reshoring” into Americas.

Major corporations which had considered moving out of China due to concerns over quality and its contractor’s transparency eventually considered locations such as Vietnam and Thailand as potential Asian manufacturing locations. However, the companies eventually decided to cease outsourced contracting and set up shop in Mexico, a country that has witnessed its star rising once again as a destination for U.S. entities reshoring into the Americas as Chinese labor costs have increased. In addition to the cost factor, location and a young workforce appear to be the other primary elements at play with regard to U.S. companies being attracted to the nation just south of its own border.

The Mexican work force is indeed young, and tends to grow at the rate of more than one million employees per year. In general, companies have found that with proper training initiatives, the skills of Mexican workers can be upgraded and high-quality work can be obtained. The young work force, according to multiple sources, is amenable to new management techniques to which an older work force may be unable to adjust.

To achieve the fiscal and monetary stimulus boosts over the next few years from certain reforms put into place, the Mexican government is required to increase labor productivity to achieve sustainable employment. But Mexico manufacturing has considerable growth potential – Goldman Sachs, in fact, has predicted that the nation could become the seventh largest economy in the world within the next 40 years. The reason for this is that Mexico boasts many advantages in this arena, including this large, young workforce; a privileged geographical position for trade and stable macroeconomic indicators. Further, according to the 2011 U.S. Manufacturing-Outsourcing Cost Index, Mexico is the most cost-effective location for U.S. companies with regard to labor and freight.

Labor cost savings remains the primary reason why manufacturing companies establish operations in Mexico; skilled labor at a fraction of the cost of North America or Europe. There exist a plethora of success stories involving companies that started with assembly operations in Mexico and that have grown to more qualified processes such as CNC machining, welding, metal stamping, plastic injection molding and more. Additionally, companies that manufacture in Mexico save on tariffs when they export to any of the 44 countries that Mexico has a Free Trade Agreement with.

Finding the right location for any company looking to Mexico to establish operations, say many experts, is the first step in this process, with factors such as looking for proximity to present and future customer bases; looking for a region with adequate connectivity, accessibility and infrastructure and determining the right real estate and utilities strategies to be taken into consideration.