News, Insights and Best Practices for Manufacturing in Mexico

Education, financial and energy reforms in Mexico improve outlook

15 Jan 2014

Category: Politics & Regulations

Recently, the BRIC nations – Brazil, Russia, India and China – have taken the greatest share of the world's attention as rising economic powers. From companies looking to reduce manufacturing costs to businesses hoping to expand into new markets, a number of enterprises welcomed the development of these nations as a sign that international commerce will continue to flourish. However, as much success as the BRIC nations have had in improving their economies and raising the standard of living for their citizens, many global organizations are beginning to recognize some of the drawbacks of moving manufacturing and production facilities far from their target consumer markets.

As part of a series of investigations, the BBC had economist Jim O'Neill visit Mexico to look into the nation's potential to expand its economy as a manufacturing powerhouse. Instead of focusing on the past successes of the BRIC countries, O'Neill highlighted the rise of the MINT nations – Mexico, Indonesia, Nigeria and Turkey. At the forefront of manufacturing, Mexico has pushed for greater reforms and regulations with regard to its financial, education and energy strategies.

China losing its foothold
As a growing number of businesses consider expanding to Mexico, the country has been quick to take note of increasing demand from companies wishing to leverage a strong labor market and inviting trade policies. One of the persuasion points that's motivating businesses to move out of China is the Asian nation's efforts to focus on internal concerns. The one child policy that has limited population growth has also influenced the country's demographics, meaning there are fewer young people with the skills or expertise to work in advanced manufacturing facilities. On the other hand, Mexico's demographics have shifted to a larger, younger population than its Asian counterpart, which helps develop a stronger labor market.

At the same time, Mexico's proximity to the U.S., Canada and South American consumers is attractive to many companies. While manufacturing costs aren't as cheap as in China, materials and goods can be distributed through a convenient supply chain without having to face such stringent import or export tariffs.

Undergirding a strong labor force is access to education. What O'Neill found was a country pushing for reforms to its education that would remove outdated hiring practices. Currently, teachers are able to pass on their position to their children, resulting in widespread nepotism. Mexican President Enrique Pena Nieto is working to remove this limitation, opening up the education system to a wider range of individuals.

Mexico is also actively pursuing financial reforms to enable a stronger economy. In fact, Mexico's president recently approved a banking law aimed at improving lending among the country's banks, according to Agence France-Presse. The reform will work to push banks to offer lines of credit and lower lending rates to consumers, even as Mexico provides the most cost-efficient lending compared to other Latin American countries. Finance Minister Luis Videgaray explained the reform will improve economic growth, as credit in the private sector is expected to rise.

Meanwhile, officials in the Mexican energy sector recognize the need for continuing energy reform if the country aims to take substantive steps to ensure access to resources and a mature market. O'Neill spoke to a representative from Pemex, the Mexican petroleum firm, and found the nation has plentiful supplies – in fact, the country has access to oil fields that can produce roughly 10 percent of that of Saudi Arabia. However, the country requires strategic partnerships with foreign experts to help lower the cost of production, which will in turn lower the cost of consumption for Mexicans. In fact, The Wall Street Journal indicated Italian energy firm Eni SpA recently spoke with representatives from Pemex to discuss future collaboration.

To enable manufacturing in Mexico, government and private sector stakeholders are working toward a common goal of keeping the country's economy strong and develop international ties.

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