Mexico may become the global manufacturing nerve center if the country plays its cards right.
According to Deloitte’s 2016 Global Manufacturing Competitiveness Index, Mexico ranks number eight out of 40 countries including Canada, Sweden, and Vietnam. Deloitte has also highlighted the country as a major manufacturer of electronics parts, machinery, and appliances, among others.
Lower costs and proximity to the U.S. are among the reasons Ford, General Motors and Fiat Chrysler produce some of their vehicles in Mexico, with Ford to double its production starting 2018 via a new plant in San Luis Potosi.
Europe and Asia Follow Suit
Some companies in Europe and Asia are also looking to grow their Mexican presence. BMW, Pirelli, Toyota, and Honda are among those with plans to either build new manufacturing plants or expand their current facilities in the country.
South Korean companies are also considering Mexico, which has a huge demand for electronic materials and parts as well as much-needed mineral resources like silver, copper, and zinc.
Meanwhile, Chinese electronics manufacturer Hisense is investing in Mexico via a $30M expansion of its Rosarito factory. The expansion is part of the company’s plan to become the third most popular TV brand in the US within the next three years.
Mexico possesses 11 free trade agreements covering 46 countries, making it a prime location for cheaper, easier manufacturing. In addition, per the Boston Consulting Group, manufacturing in Mexico is about 4 percent cheaper now than in China—compared to being 6 percent more expensive over a decade ago.
Mexican government sources cite competitive advantages such as a stable currency exchange rate, advantageous regulatory conditions for trading, and highway and rail accessibility with over 150 international harbors. These advantages give the country an edge over, say, China and Brazil.
Mexico has its share of challenges, of course. Manufacturers in the country must heed local environment, labor, and tax laws different from their country of origin. The country also lacks an established supply base that leads to higher logistics costs, although some companies look at long-term advantages rather than short-term ones.
The Mexican nation should also watch for two things: the U.S.’s recovering economy and sync between industry verticals. The US, a key export partner of Mexico, provides a valuable boost for demand of goods made in the latter. A sync between verticals such as automotive, computer hardware, and transportation equipment provides opportunities to integrate the supply chain,which in turn can position the nation for further growth.
Challenges or not, manufacturers of another key industry, plastics, are betting on Mexico. Bemis Manufacturing will expand its Monterrey facility with a 50,000-square foot addition, while the new polyethylene plant of the Braskem-Idesa joint venture will ship some of its output to the US. Meanwhile, Fisher & Paykel’s healthcare group will grow its molding operations in Tijuana.
Fisher & Paykel’s expansion is perhaps a sign of yet another industry, medical devices, looking to flourish in the country. The Paso del Norte Biomedical Cluster, a trade group of medical device makers that formed last year with 10 members, is building links between various groups around Juarez, El Paso, Texas, and southern New Mexico.
Another study pinpoints the country as the top choice for “nearshoring” (sometimes called “reshoring”) production to North America. With the study showing 1/3 of companies surveyed considering a shift of production to Mexico, it looks like the country’s well on its way to becoming a key manufacturer for industries worldwide.