Manufacturing in Mexico and Growth: Are the Stars Aligned?
Although economic growth in developed countries has been muted at best in recent years, there are those industry watchers that believe that manufacturing in Mexico is about to embark on a period of significant activity, prosperity and amplified activity. One such individual is Alan Russell. Alan is the President of CEO of the Tecma Group of Companies.
The reasons for Russell’s optimism concerning the future of manufacturing activity in Ciudad Juarez, Mexico and El Paso, Texas border region are manifold. From his perspective, increased manufacturing in Mexico activity in this part of the NAFTA region over the next five years will be due to:
• a generalized increase in the demand for consumer and intermediate goods.
• decreased rates of violence in the Ciudad Juarez border region (violence has been rolled back to recorded 2007 rates).
• escalating wage rates and oil prices that make manufacturing and shipping to and from China increasingly uncompetitive, and make the total landed cost of many goods from China virtually the same as those originating in Mexico
• China’s movement to let its currency float. This will result in exchange rates less favorable than those of the past. This will negatively affect the price competitiveness of goods produced in that country.
• Mexico’s population is young and the workforce is plentiful. Approximately sixty percent of the population is under 29. Other low-cost countries such as India and Vietnam can boast similar demographics, but lack the infrastructure that Mexico can offer to investors in the industrial sector.
• Mexico is truly a global production platform. Its extensive network of free trade agreements ensure duty free entry of its products into forty-four different nations. This includes the entire EU, as well as Japan.
• a favorable Mexican Peso – U.S. Dollar exchange rate.
• proximity to the world’s largest consumer market. Items manufactured in Ciudad Juarez during the day can be in transit to the customer through UPS and other shippers by evening.
Given the above stated points, China is no longer the obvious option when a company is looking to increase its productivity, expand its profitability and embark on a low-cost manufacturing initiative. For such firms nearshore manufacturing in Mexico looks to be a much better option than offshore manufacturing in China.
In a few short years, Mexico is expected to surpass Canada as the United States’ most prodigious trading partner. Geography places El Paso/Juarez directly in the center of the U.S./Mexico 2,000 mile border. This region has more infrastructure to accommodate the coming Mexico manufacturing expansion than any other region.
The El Paso/Juarez border is rapidly becoming an asset that creates opportunity rather than being a liability or a barrier to economic progress. It is much easier for a company to ask their executives to run a factory in Ciudad Juarez where their families can live and go to school in El Paso, rather than in an interior Mexican City. The executives can commute to work as they would should they live in any other U.S. city. In El Paso they can enjoy a quality of life that gets better with the passage of time.