News, Insights and Best Practices for Manufacturing in Mexico

How Mexico has positioned itself as an offshoring haven

14 Nov 2014

Category: Manufacturing in Mexico, Politics & Regulations, Taxes & Finance

Mexico has become a popular offshoring destination for many companies in the U.S. and Canada. In fact, an overwhelmingly large number of products - from automobiles to medical devices - are now being manufactured in the country. China was once the locale that companies looked to set-up portions of their industrial operations in attempt to see better profit margins by lowering operational costs specifically related to labor. However,  Mexico has - rather aggressively - infringed on that territory.

Forex Market News and Analysis reported that industrial production in Mexico increased by 3 percent according to a survey taken in September. This number, although seemingly small in nature, is considerable for a number of reasons. According to the National Institutes for Statistics and Geography, since 1980, the Mexican national average for production occurring in the country's industrial sector has been 2.08 percent.

This positive growth is one of the reasons why companies continue to invest heavily in Mexico's manufacturing sector. Nasdaq stated that over the next six years, Coca-Cola will invest $1 billion annually in its production facility located in the country and other companies based in the U.S. are expected to follow suit.

Mexico as an emerging market
From a governmental perspective, Mexico has done all it can to position itself as an attractive option for companies outside of the country to set up manufacturing operations there. Nasdaq wrote that over the next five years the country expects close to $600 billion to be invested in infrastructure, both public and private.

In addition, Mexico also has boasts the second-largest economy in all of Latin America and expected to grow at an annual rate of 4 percent between now and 2019, according to Nasdaq. The country also has international cash reserves of $163 billion. This is significant because its national debt is three times lower.

More reasons why companies consider Mexico for offshoring
When it comes to manufacturing, there are always a number of costs that are passed along to the consumer. This leads to products being expensive and in many cases, contributes greatly to consumer dissatisfaction and a company developing a negative reputation in the marketplace.

However, Nasdaq stated that it's roughly 25 percent less expensive to manufacture a product in Mexico compared to in the U.S., primarily due to substantially lower labor costs. In addition, according to Fox News Latino, out of an actively employed population of 52.4 million people, between July and September of this year, only 2.7 million people were unemployed. Of those currently working, 24.4 percent had jobs in manufacturing.

These numbers are significant for a number of reasons. The most important is companies looking to open factories and other manufacturing operations will have no problem finding people who are willing to work. Additionally, with salary expectations significantly lower than the U.S., organizations will benefit from being able to produce items that are high in quality at a fraction of the cost associated with making them in the U.S. These are just a few of the reasons why companies will continue to make expanding to Mexico a top priority. 

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