Successful U.S. Companies in Mexico: How They Got There
November 10, 2016
Globalization has truly changed the economic landscape, leading to diverse growth all over the world. In recent years, Mexico has become a hub for major companies, particularly those with manufacturing needs. The new factories, experienced workforce, low labor costs, and improved trade agreements—particularly NAFTA—have contributed to the growth of new businesses in Mexico. NAFTA (the North American Free Trade Agreement), which was implemented in 1994, allowed for easier trade between Canada, the United States, and Mexico, doing away with certain tariffs and barriers, both physical and policy-driven. Let’s take a look at some well-known brands success from top U.S. companies in Mexico.
The automotive industry has had a significant presence throughout Mexico’s maquiladoras, exemplified by Ford’s gradual migration of production south of the U.S. – Mexico border. Founded by Henry Ford and incorporated in 1903, Ford has been a consistent leader in automotive manufacturing in design and was one of the first automotive companies to establish factories in Mexico in 1925.
The auto company has developed assembly and stamping plants in Cuautitlan and Hermosillo, engine plants in Chihuahua, and a corporate headquarters in Mexico City. Recently, Ford has made the decision to move all of its small car manufacturing to Mexico over the course of two to three years in hopes of simpler, more affordable production.
Volkswagen, once a burgeoning European leader in the automotive industry, has hit some rough snags in recent times. The German company was expected to see a decline in annual sales, but it’s actually experiencing a small boom in Mexico. Volkswagen established factories in Mexico over 50 years ago, but recent internal demand has led to a surprising jump in sales throughout Mexico.
Exports from VW’s maquiladoras have seen a big dip, but industry reports found that sales within the country’s borders jumped 10 percent in November of 2015 with more customers flooding dealerships. The demand comes as a result of low inflation, stricter policies regarding used-car imports, and cheap credit.
Sabritas is a subsidiary brand under PepsiCo and is a dominating company in Mexico. It sells the classic Frito-Lay snacks that U.S. residents are familiar with—Doritos, Cheetos, Tostitos—along with Mexico-specific snacks, including Sabritas, Sabritones, Rancheritos, Pizzerolas, and Turbos Flamas).
The brand has about 80 percent of the market share in Mexico’s salty snack market. This is followed only by Barcel, which has about 12 percent of the market share. Sales are expected to reach nearly $4.7 billion beginning in 2017, and PepsiCo plans to invest upwards of $5 billion in Sabritas’ development, focusing primarily on infrastructure, relationships with local farmers, brand building, and community.
Nestle was originally established in Switzerland in 1905 and has since grown into a food giant, responsible for producing a wide range of products, including chocolate bars, baby food, coffee, and cereal. The company has had factories in Mexico for over 80 years. In 2014, Nestle planned a $1 billion investment to build two more factories in Mexico over the course of five years.
In December, the company opened its fifteenth factory in the country in the city of Silao, Guanajuato. The factory, designed to produce over 130,000 metric tons of dry pet food, cost $220 million and was expected to create 200 direct jobs and another 1,000 indirect jobs. Nestle also plans to finish construction of its sixteenth plant in Mexico by the end of 2016. This factory, which will produce infant formula, is expected to cost about $350 million and will be located in Ocotlàn, Jalisco.
Furthermore, Nestle has had a huge presence in the local economy’s growth. In 2015, the company launched the Nestle Iniciativa por los Jóvenes in Mexico City. The initiative is designed to provide over 300,000 students from middle schools and technical colleges with professional career guidance and job training workshops. The initiative plans to create 700 new jobs and 3,500 indirect jobs, with 70 percent of those offered to youths age 18 to 29. Nestle will also create 500 internship opportunities for youths in the program and provide employment tools for those not selected to find the right jobs. The initiative also aimed to drive partnerships between customers and suppliers and develop new entrepreneurial projects.
As the economy continues to change and evolve, Mexico is becoming a powerhouse, not just in manufacturing, but also spending and development.
If you are considering moving your manufacturing operations to Mexico, NAPS is an industry leader specializing in helping companies manage all aspects of manufacturing in Mexico, including accounting, human resources, import/export and environmental health & safety. For more information, contact NAPS today.