Six Reasons to Establish Your Nearshore or Offshore Manufacturing in Mexico

Immex infografica 2 80x80 - Six Reasons to Establish Your Nearshore or Offshore Manufacturing in Mexico
IMMEX: The Mexican Manufacturing, Maquila and Export Services Industry program
April 6, 2020
Immex infografica 2 80x80 - Six Reasons to Establish Your Nearshore or Offshore Manufacturing in Mexico
IMMEX: The Mexican Manufacturing, Maquila and Export Services Industry program – aiig
April 14, 2020
Six reasons to establish 2 - Six Reasons to Establish Your Nearshore or Offshore Manufacturing in Mexico

With the recent disruptions in industry and the world economy, many international companies in Mexico and around the world are searching for ways to continue to do business and expand despite challenging times.


Though Mexico has been a popular destination among international investors, expats and businesses for decades, its current combination of assets is making it even more competitive and attractive for companies in many sectors.


Here are six reasons why Mexico continues to be an attractive place for investment and Mexico manufacturing locations as compiled by Mexico’s EGADE Business School at the Monterrey Institute of Technology and Higher Education, and translated and expanded upon here by American Industries:

1. Geographic location. Mexico’s proximity and connectivity to the US allows for an 80% reduction in shipping times and 75% cost savings in transporting cargo and raw materials to its northern neighbor in comparison to China.


With modern highway infrastructure and border crossings to routes in the US, goods can be easily imported and exported via land or transported to one of the country’s main airports, or seaports of Manzanillo, Lazaro Cardenas, Veracruz, Altamira or Ensenada, for shipping to Asia and other international destinations.


The country has a total of 117 operating ports and terminals that connect it to over 145 countries on both the Atlantic and Pacific oceans. According to information from the Secretariat of Communications and Transport, despite a slight decrease in 2019, container shipping and capacities have steadily increased over the five previous years, with 4.93 million TEU moving through Mexican ports last year. In response to this increasing demand, Mexico has worked to encourage growth in this sector, increasing connectivity among ports and supporting the development of integrated intermodal systems to transport products, offering a significant advantage for Mexico manufacturing supply chains.

1 1 - Six Reasons to Establish Your Nearshore or Offshore Manufacturing in MexicoSource: http://aapa2016mexico.com/en/mexican-ports/mexican-port-system

 

2. Competitive labor costs. With an average hourly rate for entry-level workers of US$3.95 per hour compared to China’s US$4.50 per hour, it offers significant savings for international companies looking to start up manufacturing services in Mexico.


This is especially attractive for US companies, where this substantial wage gap offers the most ideal circumstances for success and ensures that your company is competitive on a global level.


On this point, it is good to look at using shelter services in Mexico, as it will guarantee that your company will not only be able to make the most of these savings on labor costs and find the perfect talent for your operations, but also that you are in compliance with all human resources, legal requirements and tax obligations in relationship to employees and all other matters.

3. In addition to advantageous labor costs, Mexico also has a large workforce of qualified workers and engineers. With an average age of 30 years old, Mexico’s labor force is relatively young. Furthermore, it also has a large pool of talented and educated workers in the technology and engineering fields. Mexico has changed greatly over the years, and it is important to note that the current generation is much more likely than previous generations to have higher education studies. With internationally recognized institutions such as the Monterrey Institute of Technology and the National Autonomous University of Mexico,


the country has nearly 500,000 students graduating from undergraduate programs each year entering into the labor market. In just the state of Jalisco, a hub for tech companies and other industries, 10,000 engineering students graduate each year.


 

4. Weakening of Mexican peso versus the dollar. With corrections in global oil prices, declines in world stock markets, and recent restrictions on trade, the Mexican peso has depreciated against the dollar. As an exporter, this gives you more purchasing power in manufacturing operations, labor costs, and materials purchased in Mexico, allowing you to be more competitive. This is particularly beneficial for industries like the automotive and aerospace industries in Mexico, which export a large majority of their output. This increased purchasing power, in addition to savings on shipping costs, makes Mexico more and more attractive compared to China for manufacturing.

5. Access to renewable energies and natural gas. Twenty-six percent of the electricity generated in Mexico is from renewable sources, including hydro power, geothermal, solar power and wind, and it is expected that this will reach 35% by 2035. As one of the largest clean energy markets in Latin America, Mexico attracted US$4.3 billion dollars in investment in renewable energies in 2019.


Although Mexico has previously been considered a less traditional market, it has now become one of the most attractive emerging markets and a world leader in integrating clean energy generation due to its ambitious clean energy targets, fiscal incentives and legislative stance.


In 2016 it implemented an energy auctions system that offers long-term contracts for investors to help meet its ambitious energy transformation system.

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6. The signing of the USMCA trade agreement contained updates to Mexican laws regarding protections for intellectual property, the internet, investments and the automotive industry Mexico. Signed in 2018, it eliminated much of the general uncertainty that had been limiting market expansion, resulting in increased confidence and a large number of companies looking to invest in and start up business in Mexico. Some highlights of the USMCA for business include:


  • The elimination of trade tariffs and barriers on exporting digital services.
  • Allowing automobiles that have at least 75% of their components made in Mexico, the US or Canada to be imported across all three countries without tariffs.
  • An updated chapter on intellectual property allowing for strong and effective protection and enforcement of IP rights.
  • Companies are no longer required to establish headquarters in any other USMCA country, encouraging cross-border business by allowing companies to maintain a single headquarters for all of North America.

As you can see, if you are looking to expand or start up operations Mexico, there are many benefits that make it advantageous both financially and logistically, including its location, competitive wages, plentiful and trained workforce, greater purchasing power, expansion of renewable energies, and a host of protections and fiscal and tariff benefits rolled out in the USMCA.

 

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Post by Liliana Hernández, American Industries Group CEO

 

If you would like to find out more about this topic or are interested in receiving a complimentary business case analysis for your operation in Mexico, please fill out this form or contact us at:

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