5 Reasons to Invest in Mexico Manufacturing

November 12, 2014

1. Enormous domestic economic growth. Mexican per capita gross domestic product and family income have increased by 45% since 2000. Ownership of home appliances, automobiles and electronics have skyrocketed. With a population of 122 million, Mexico has strong domestic demand that is great for consumer good companies. By manufacturing in Mexico, companies can benefit by exporting finished goods to the United States and Canada, as well as sell into the growing domestic market.

2. Mexico Manufacturing. A decade ago, China with its seemingly limitless supply of cheap labor was seen as an unstoppable force in manufacturing. Mexico has not only met that challenge but now offers a lower cost manufacturing solution, especially for finished goods destined for North America. The country has equal or better productivity and inflation remains stable. Foreign companies manufacturing in Mexico have benefited from the free trade agreements Mexico has with 44 other nations. And of course, Mexico has NAFTA. It should not be a surprise that Mexican exports of electronics, medical devices and aerospace products has increased by a factor of 3 times from 2006 to 2013 to 78 billion.

3. Successful structural reform. Many developing nations are perennially in need of reform. In this regard, Mexico is a superstar. The country has made difficult labor and financial reforms over the past 2 years, which has increased economic efficiency. This has benefited Mexico manufacturing, as well as the reputation of the country. It has opened the doors to competition in the telecom sector by reducing the power of telecom giants Telmex and Televisa. It is breaking up the state company Comision Federal de Electricidad, which is projected to decrease electricity costs by 40-50 percent. The energy sector, monopolized by the state for three quarters of a century, is being opened to private investors. The government was able to pressure one of the most powerful unions, the National Union of Education Workers, to prohibit the sale or inheritance of teaching positions. Compulsory exams long pressured for were introduced.

4. Mexico is endowed with the deposits of fossil fuels. The country is the sixth largest crude oil producer in the world. Because of this, energy revenue has long been the fiscal lifeblood of the Mexican government. Dividends from national energy companies account for 30% of government income. Unfortunately, Mexico’s reserves are dwindling. Proven reserves are expected to last for ten more years. The government has decided to tap into private sector expertise and capital by allowing exploration and production. This new strategy will Mexico to squeeze more from its reserves and highlights an increasing open-mindedness of the government.

5. Mexico is the southern neighbor of the United States, the biggest economy in the world. This has several advantages for manufacturing in Mexico. Transportation costs are significantly less. Often overlooked though is that the time-to-market is significantly less, as well. Goods made in Asia must make multi-week transportation across the Pacific Ocean before arriving on American shores. The US is the country’s third largest trading partner. The two exchanged $507 billion worth of goods and services in 2013.