The Midwest is a manufacturing hub. Indiana counted itself among one of the most advantageous states, as it leads the U.S. in jobs of this sector, according to IndyStar. That fact may not be true much longer as more of Indiana's manufacturing giants decide to move their operations elsewhere. Carrier and United Technologies Electronic Controls - both branches of United Technologies Corporation - recently decided to outsource 2,100 jobs to Monterrey, Mexico.
Although the two companies cited cost effectiveness and new regulatory requirements as the reasons for their move, the other cause may be the increased production rates of manufacturing employees. Jobs now require less people than they used to and advanced materials enable businesses to create more products with fewer resources, a study from Deloitte and the Council on Competitiveness found. More companies are seeing the advantages of moving their operations to Mexico.
Benefits of Monterrey
The decision to outsource jobs to Monterrey was a strategic one for Carrier and UTEC. Usually when deciding on a location, companies tend to consider the industrial corridor where their operations would take place, locale of customers and proximity to the U.S. border or ports of entry, according to Site Selection. In addition to the city's position within Mexico, Monterrey offers businesses many other benefits, including:
- Favorable business environment: Monterrey is Mexico's second economic and financial hub. The city's strong industrial sector lends itself to a high standard of living and GDP per capita, according to Silicon Border. Due to its location, businesses from around the world have decided to invest directly into its production.
- North American Free Trade Agreement: Mexico is a participant in over 44 free-trade agreements, although NAFTA may be the most important. This partnership allows companies operating within the country to export products cheaply and save money due to reduced tariffs on certain items.
- Infrastructure: Monterrey provides manufacturers with access to various forms of infrastructure, especially railroads, airports and the NAFTA Highway. Companies utilizing this area will benefit from the two of Mexico's most important railways, Ferromex and Kansas City Southern de Mexico. Businesses can use this form of transportation to ship supplies between regions of the country and for exporting purposes. Monterrey is also home to two international airports, further increasing organization's ability to import necessary equipment while shipping the final result elsewhere. Lastly, the NAFTA highway connects Mexico with the U.S., allowing shipments to both enter and exit the Monterrey region.
- Education: Monterrey hosts 77 universities and is privy to the almost 230 technical schools in the state of Nuevo Leon. The top public university in northeast Mexico - Universidad Autonoma de Nuevo Leon - finds its home in this region as does the headquarters of Monterrey Institute of Technology and Higher Studies.
- Skilled workforce: Due to the city's access to quality higher education, Monterrey has a very adept and proficient pool of workers for manufacturing companies looking to outsource. These employees have an eye for detail and are skilled in maintaining the quality of the items they produce. In addition, these workers usually costs manufacturers less. Companies can save money on labor while still producing high-value goods.
Mexico is prime for success in various industries
The decision to offshore to Mexico is not an easy one for many organizations. There are many factors to consider, including job loss, level of production, cost efficiency and more. Carrier and UTEC are two of the most recent HVAC manufacturers to shift their operations to Mexico. The country gives companies of various industries the opportunity to improve their processes. Let's take a look at eight of the most popular manufacturing sectors benefiting from the transfer to Mexico:
- Aerospace manufacturing: United Technologies Corporation, the parent brand of both Carrier and UTEC, focuses primarily on the aerospace and building industries. It's no question then why the company would want to move part of its operation to Mexico. According to PricewaterhouseCoopers, Mexico's gross domestic product of the aerospace sector grew by more than 20 percent every year over the past five years. This industry has been on the rise over the years, due in large part to the country's educated workforce, participation in free-trade agreements and maquiladora system. All of these factors led the aerospace manufacturing sector in Mexico to expand.
- Automotive manufacturing: When people hear about companies moving their operations to Mexico, it is often those participating in automobile manufacturing. Giants like Ford, which plans to build a new assembly plant and double its production capacity in the country by 2018, are increasing their investment in Mexico, according to The Wall Street Journal. In 2015, Mexico produced roughly 20 percent of all vehicles produced in North America, WardsAuto reported. Due to Mexico's vicinity to the U.S., original equipment manufacturers and Tier 1 and 2 suppliers can export goods to places including Australia, New Zealand and Asia. Mexico's location allows for a more streamlined and desirable supply-chain solution for manufacturing companies around the world.
"Mexico is the fifth largest medical device exporter in the world."
Medical device manufacturing: A study from Mexico's Ministry of Economy, the Boston Consulting Group and ProMexico found that the country is the fifth largest medical device exporter in the world and top supplier to the U.S. Mexico has made a commitment to improving their educational infrastructure so those graduating do so with a high level of technical acuity in this sector. Furthermore, the country's participation in the North American Free Trade Agreement enables Mexico to export these goods out of the country tariff-free.
- Appliance manufacturing: The Boston Consulting Group believes appliance manufacturing could grow 19 percent by 2017. What would cause this improvement? Businesses from around the world utilize Mexico's skilled labor to develop high-quality products - refrigerators, washers, dryers and more - for a reduced cost.
- Electronics manufacturing: Employing more than 50,000 Mexican workers, electronics manufacturing has taken off due to the country's investment in its education system and skilled workforce. Jalisco, Guadalajara is the top location for this sector in Mexico, with 380 specialized component suppliers, 14 electronic services manufacturing companies and 12 OEMs.
- Energy manufacturing: As countries worldwide look for sustainable resources to promote clearer energy, Mexico demonstrates potential as its energy sector. Due to Mexico's push to open its energy markets and improve overall fuel efficiency, the country expects to see 2.5 million open jobs over the next 10 years and a greater opening to private participation.
- Furniture manufacturing: Its proximity to the U.S. makes Mexico a prime location for furniture manufacturing, as the U.S. is one of the country's biggest export markets. Mexico also improved its curriculum to help workers understand the necessity of attention to detail and product quality in this sector. According to Mexico's Federal Telecommunications Institute, furniture manufacturing grew 11 percent in the third quarter of 2015 and shows no signs of slowing down.
- HVAC manufacturing: Mexico's focus on this industry is why Carrier and UTEC decided to offshore some of their production. There will always be a need for heating, ventilation and air conditioning units as more homes, factories and other buildings are developed. The HVAC manufacturing sector is poised to experience as much as 25 percent annual growth as the economy continues to improve, according to Manufacturing in Mexico News.
The decision to offshore operations to Mexico requires careful consideration of several factors from companies. These organizations must be mindful of the location where they're moving their operations, the future growth of their company's manufacturing sector and the benefits of the country. By understanding these elements, companies from the U.S. and other parts of the world can make sure their choice is an educated one.