Regionalism Makes Mexico Part of Global Manufacturing Hub
In an increasingly interdependent and regionally minded world economy, Mexico’s manufacturing growth coupled with the rise of an increasingly educated and innovative US workforce, is propelling the region to prominence as a global manufacturing hub.
Since the signing of the North American Free Trade Agreement (NAFTA), the US and Mexico have been joined as production partners in an increasingly regional global marketplace. What manufacturing companies from the US and other countries see in Mexico is no mystery; lower cost production and superior quality control. While China was the global manufacturing hub and offshoring partner of choice in the 1990s, it is no great surprise why Mexico is rapidly becoming the home for manufacturing:
- Mexico has more free-trade agreements than any other country in the world.
- While China’s wages are rapidly rising, Mexico’s are stable and low.
- Mexico offers a large labor pool that is also growing rapidly.
- Mexico’s energy costs are relatively low.
- Bordering the US, Mexico is able to offer shorter supply lines, faster delivery, reduced transport costs, and managing within the same time zones.
- Mexico’s IP laws are very strict, allowing excellent protection for hi-tech and other industries.
- Mexico’s investment in an educated and highly skilled workforce differentiates the manufacturing labor from China’s low-skill labor pool.
Rise of a Regional Manufacturing Unit
Mexico’s advantages are attractive in and of themselves, but the unique compatibility of the Latin American country with the United States is forming what may soon become a huge, North American, economic structure that allows the two countries to compete as a regional player on a global scale. On one hand, Mexico provides inexpensive manufacturing labor, while on the other hand, the US provides knowledge assets. Today, we see a general trend for labor-intensive jobs to flow south into Mexico while innovation, design and engineering tend to flow into the US. It could be said the two economies are so intricately linked across many dimensions so as to be considered almost a single economic unit.
- 40% of the value of US imports from Mexico comes from the US. In other words, 40 cents of every dollar the US spends on Mexican goods goes to US industry.
- More than six million US jobs depend on US-Mexico trade.
- Almost 50% of all US states each sell goods to Mexico in excess of $1 billion USD annually.
- Oil prices are lowered by increased oil trade within North America.
- Automobiles manufactured in North America have their parts cross the border approximately eight times during the manufacturing process, reflecting a high level of vertical specialization and partnership.
[webinar_widget_blog] Adding to this evolutionary development is the increasing migration of labor intensive and manufacturing functions from distant locations such as Korea, Vietnam, Malaysia, Indonesia and China. These functions are being attracted due to lower costs and favorable access to the North American markets due to NAFTA all of which are creating an unanticipated growth in jobs in both the US and Mexico.
In numerous other ways, Mexico and the US form a unique partnership. They share foreign direct investment, joint ventures, new sales and distribution offices, and R&D facilities. As the two countries focus on their strengths and further intertwine their economies, each providing what the other needs most, this regional USMEX economic unit will likely form the next global manufacturing hub.
The Tecma Group of Companies has positioned itself to play a valuable role in this evolutionary transition. Complexities of Mexican laws have increased and are expected to continue to address issues that are confusing to newcomers. Mexico Shelter Services as provided by an established Shelter Company, such a Tecma, is proving to be the wave of the future in simplifying transitioning of manufacturing from foreign countries to Mexico.