Mexico site selection variables favorable when compared to China’s
The Center for Development Research (CIDAC) believes that certain policy steps can be take that will result in Mexico site selection becoming the location of choice for firms seeking to move manufacturing from Mexico to China.
According to the CIDAC, Mexico site selection decisions taken today are ones that, just a few years ago, may have favored job creation and investment in China. According to the research center, the main reasons for this shift include:
Lower transportation costs – Mexico is in an advantageous geographic position to transport goods to the United States, when compared to, half a world away, China.
Lower wages – While Chinese wages have increased at a twenty percent per annum clip over the past decade, the salary paid to Mexican manufacturing wage earners has increased an average one percent year over year over the same period.
Plentiful workforce – While China is constrained in its ability to provide a sufficient pool of trained production laborers due to demand, and the results of its long held “one child” policy, the percentage of Mexico’s population of economically active individuals (ages 15 -64) is in the middle 60s.
In order to make Mexico site selection more attractive to foreign investors the Center for Development Research recommends that policymakers:
- eliminate or defer the levy of new taxes imposed on the maquiladora industry resulting from tax reform measures passed in 2013.
- revoke new rules which levy value-added tax on temporarily imported items by maquiladora manufacturing firms.
- direct more government resources toward the funding of infrastructure and industrial regions that make Mexico site selection preferable to other global options.
- ensure the efficiency of government expenditures
- create a competitive wholesale market for the generation of electricity
- broaden the reach of the nation’s power grid through the attraction of private foreign and domestic investment in the energy sector
- expand the country’s network of railways
- invest in modernizing and increasing the efficiency of international border crossings with the United States
- invest in infrastructure related to expanding cargo capacity at ports and airports
According to CIDAC research, the most preferred Mexico site selection locations for manufacturing projects are those found in the states of Chihuahua, Nuevo Leon, Baja California, the State of Mexico and Jalisco, while, according to CIDAC, Campeche, Zacatecas, Yucatan, Sinaloa and Tlaxcala are those currently receiving the least foreign direct investment nationally.