There are numerous reasons why so many multinational companies are moving manufacturing operations to Mexico. More affordable labor costs, a highly educated workforce, Mexico’s proximity to the United States—and that’s only the beginning.
Expanding operations or moving manufacturing facilities to Mexico has become a reality for countless companies in recent years. And the trend is only set to continue. Is such an approach right for your business? Read more to see why so many companies are choosing to manufacture in Mexico.
Tangible Benefits to Manufacturing in Mexico
While companies have been moving production from countries like China to Mexico over the past 40 years, manufacturing in Mexico is now growing at its fastest pace in history. Many multinational companies, from virtually every country in the world, are considering a manufacturing footprint in Mexico.
Competitive Labor Cost
Companies are always looking for ways to cut costs without sacrificing quality. Here, it all starts with the low cost of well-trained labor in Mexico. Relative to the United States, along with most other developed countries, direct labor in Mexico is approximately 70% less expensive. This cost-effective, competitive labor is the driving force behind the success of Mexico manufacturing.
Highly Educated Workforce
Mexico has a large, highly educated workforce that favorably compares to virtually every developed country in the world. In fact, Mexico now graduates more engineers on an annual basis than the United States. With generations of manufacturing experience, Mexico also has a deep pool of talented operational workers and professional managers who can help drive expansion of sophisticated companies.
Proximity to the United States
Mexico’s proximity to the U.S. 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 option for the North American market.
In addition, corporate executives and operational managers can visit their Mexico operations and manufacturing facilities more regularly. Companies can dramatically cut lost productivity costs, all while improving the work-life balance of their management teams.
Most industries are successfully manufacturing in Mexico thanks to the Mexican government’s participation. First, Mexico is known for its aggressive trade agreements with the rest of the world. While USMCA (formerly known as NAFTA) is certainly the most widely known and used trade agreement in Mexico, the country has over 44 other trade agreements in place. This enables shelter manufacturing in Mexico while also allowing foreign companies to import raw materials and components, tax and duty-free.
Low-Cost Mexico Manufacturing
Mexico has created special programs and decrees to attract foreign investment. The most widely used of these programs is IMMEX, 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. What’s more, companies manufacturing in Mexico under the IMMEX program enjoy special income tax and fiscal treatment. This helps to reduce their overall operating expenses.
The Mexican government has made a commitment to improve the infrastructure in Mexico, along with general security in Mexico, to help manufacturers operate without disruption. This is evident in the reliability of the electrical grid. For the most part, electricity in Mexico is just as equally as reliable to that of the United States.
While the cost of electricity can be higher in Mexico than in many U.S. cities, Mexico’s energy reform in 2015 is just one way the government has made strides in recent years toward being more competitive. In fact, President Andrés Manual López Obrador (AMLO) has taken a particular interest in reinforcing infrastructure throughout Mexico, developing a six-year plan spanning 2018 through 2024 that’s designed to reimagine the aviation and airport system, build new refineries, and expand to a multi-modal corridor system. Dubbed the Construction and Modernization Program (CMP), this effort also includes both passenger and cargo transit along the “Maya Train,” and proves Mexico’s continuing commitment to finding modern energy solutions.
Transportation and Manufacturing Cost Savings
Another area where Mexico has invested 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.
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, the automotive industry is contributing most to Mexico’s growth.. Companies such as Nissan, BMW, Audi, Honda, Mazda, Volkswagen, Ford, Kia, Toyota and General Motors have 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. 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.
Regardless of the industry, companies around the world are beginning to 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 optionIn fact, Mexico is one of the largest exporters to the United States and Canada.