On August 26, American Industries held a webinar discussing some of the main benefits to consider when starting up operations in Mexico, and business models companies can use for operating here, among other topics. With the rapidly-evolving challenges companies face in global business today, including changing trade relations, impacts of the pandemic, travel restrictions, labor shortages, and cost increases, to name a few; many companies are looking for long-term solutions that will help them ensure business continuity, lower costs, and increase supply chain resilience—and Mexico is a great option.
In the webinar, Adán Gómez, American Industries Business Development Director, shared some statistics about Mexico’s current business environment and economic stability. He mentioned that Mexico currently has the 15th largest economy globally, with 17% of its GDP generated by the manufacturing industry, and that 90% of the goods manufactured here are exported. It is also the 9th largest recipient of FDI in the world, even post-pandemic, receiving US 29 billion in 2020 and over 12 billion in the first half of 2021.
Speakers also discussed five main factors that have contributed to this exceptional stability and growth that make it perfect for companies looking to engage in nearshore or offshore manufacturing in Mexico, including:
1. Mexico’s location is ideal for logistics and transportation efficiency. Compared to China, companies can optimize their supply chains by shipping goods 80% faster with a 75% cost reduction. Mexico’s proximity to the US border means manufacturers are close to US markets and can even offer same-day delivery in some cases. Being in the same time zone also allows for better quality control and more efficient employee training.
2. Mexico allows easy access to regional markets and integration. With its excellent trade relations, companies manufacturing in Mexico will face fewer restrictions due to its 14 free trade agreements with over 50 countries representing 60% of the world’s GDP. Mexico is also a significant trade partner with the US, and there are over 18,000 companies with US investments operating in Mexico. In addition, 70% of all FDI from the US is in Mexico, and 45% of the raw materials used in Mexican manufacturing facilities are sourced from the US.
3. Mexico has a robust manufacturing and supply base. With over 50 years of experience supporting some of the world’s most important international companies, Mexico has developed a mature base of OEMs, suppliers, facilities, and an efficient, integrated supply chain, allowing the country to export high value-added products.
4. Availability of skilled and affordable labor with experience in a wide variety of industries. With a population of over 126 million and an average age of 29 years, Mexico currently has 75 million economically active individuals, a number which is expected to grow to over 80 million by 2040. In addition, there are many English-speaking managers and employees. Currently, 5 million students are enrolled in higher education, with 1.5 million of these in engineering and technology-related degree programs. In addition, with five decades of people working in manufacturing in Mexico, it offers excellent productivity and a stable labor environment.
5. Mexico offers a multitude of savings programs and tax advantages. There are a variety of programs and tax savings international companies in Mexico can take advantage of under trade agreements such as the USMCA and CPTPP, as well as tax savings and incentive programs such as IMMEX (which allows companies to defer or avoid VAT payment) and PROSEC (program for the promotion of sectorial programs in a variety of industries, including automotive, textiles and electronic, among others), among others.
In addition, Gerardo González, American Industries Guanajuato Regional Director, discussed the business models companies can use when looking to start up business in Mexico and some of their characteristics. These include establishing a stand-along operation, finding a joint venture partnership, acquiring an existing operation, outsourcing, or working with a provider of shelter services. All these options imply different levels of risk, liabilities, cost and have different timelines, with the most advantageous in many cases for international companies being a shelter program.
In this webinar Jorge Baca, American Industries Queretaro Regional Director, also talked about the key steps of site selection, including the criteria involved in this, and creating cost models. If you are interested in finding out about these topics and more, check out our webinar or reach out to discuss your specific needs and receive a complementary cost model today.
By Isaías Rivera | Marketing & Business Development Director | American Industries Group®
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