Manufacturing in Mexico: Mature Supply Chain and R&D Networks
With the entire world being turned upside down this year, including significant disruptions to global supply chains, and a continued trade war between the United States and China, international companies in Mexico and everywhere are rethinking how they do business. Not surprisingly, many manufacturers are starting to look more closely at Mexico. It has the advantages of a skilled and trained labor force, strategic location, connectivity to the USA and Atlantic and Pacific Oceans, and long history of being open to industry. It is precisely this openness over the past several decades that has produced the well-developed, mature and robust network of supply chains, and research and development and industrial parks it has today.
Starting with NAFTA, and now the USMCA, Mexico has become an increasingly important player in global value chains. These have developed over the years by following trends in automation, follow-the-sun systems, process digitalization and focusing on human capital in assembly lines.
Some of the most well-developed sectors include the automotive industry Mexico and the aerospace industry in Mexico. There are currently 31 OEMs in the country for light and heavy automakers. Six hundred of these are tier one companies that supply and support the OEMs with regional content, which is now even more critical with the increased regional content guidelines in the new trade agreement. Auto parts supply chains across North America are so integrated that products cross the US-Mexico border up to 8 times before a vehicle is completed. One example of this fluidity in manufacturing across North America in the aerospace industry is the Lear 85 Jet. It is developed in Canada, manufactured in Mexico, and assembled in the United States.
With a strong tendency emerging in 2020 to move imports away from China, companies worldwide with investments in China are weighing the risks and profitability of moving production closer to their target markets, and Mexico is an obvious option for US markets. When analyzing the costs and benefits of offshore manufacturing in Mexico, it is good to work with providers of shelter services in Mexico. They have the skills and experience to make sure your projections are accurate and give a true picture of what it is like to start up business in Mexico.
According to data collected by the Mexican Association of Industrial Parks, nearly 4 of every 10 investment initiatives in industrial real estate Mexico are from China. This reflects the rising trend in nearshoring, or companies moving production to countries geographically closer to their main consumer markets. This same data collected from an internal survey done by the association in the first half of August 2020 showed that China represents 37% of new projects, followed by the USA with 16%, Mexico itself with 12%, Japan with 9%, and Germany with 5%.
Another advantage is Mexico’s mature R&D system. There is currently a high concentration of R&D centers in six bordering states, forming a Mexican R&D corridor, with 250 R&D centers in total. These centers work closely with industrial parks and clusters to carry out innovation-focused projects for productive purposes. In addition, there are at least 35 competitiveness clusters and 4 networks located across 16 Mexican states focusing on areas such as research, development and technology, digital factories, automation, integration, movement and control, energy and industrial supply focusing on industry 4.0.
All of these benefits, combined with Mexico’s skilled and competitive labor force, allows companies to reduce costs and maximize their profits, making it the most attractive option for international companies in China and across the world looking to relocate their nearshore or offshore operations.
(This article was written using information shared by the Mexican Association of Industrial Parks)
By Alejandro Lara Cruz | Board Member | American Industries Group®
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