News, Insights and Best Practices for Manufacturing in Mexico

Japanese investors receive warm reception in Mexico

18 Mar 2014

Category: Manufacturing in Mexico

Mexico is welcoming Japanese manufacturing companies with open arms, according to Yahoo Finance. In Celaya, a city in the Mexican state of Guanajuato, where Honda and Mazda both have factories, there are Japanese language classes, and a large billboard rests at the city's entrance that reads "Celaya is a good choice. Welcome Honda."

Celaya is one of the many places where foreign investors, American firms included, are opening factories and building cars. Mexico welcomes these investors, helping them as much as possible.

"The Japanese company boom was sparked in 2011 with the Honda and Mazda announcements," said Hector Lopez Santillana, the Guanajuato state secretary for economic development, according to Yahoo Finance.

Japan's investments in Guanajuato stand at $4 billion, and the Japanese have created 25,000 jobs in the state. Japanese investors are effectively creating a middle class and raising Guanajuato's standard of living. In Celaya, there is an $800 million factory that produces Honda cars. The company is also going to build a $470 million plant that will construct only transmissions. West of Celaya in Salamanca, Mazda has built a $770 million factory to assemble its own line of vehicles.

Japan greeted warmly by Mexico
The state is welcoming its foreign investors wholeheartedly. In Celaya, there is a 126-room hotel that requires its employees to take Japanese lessons. The menu also has Japanese food, like udon noodle soup. The televisions broadcast the Japanese station NHK.

Mexicans who work for the Japanese companies in Celaya have also taken an interest in Japanese culture. Two sisters have opened a Japanese language school there, where students range from school children to college students to professionals who want to advance through learning a foreign language.

"I was always interested in the culture," said computer specialist Christian Duval, who is taking lessons. "Unfortunately, there used to be few possibilities to find a school to learn the language."

Japan is benefiting from its relationship with Mexico
According to the Japan Times, the number of Japanese companies in Mexico has increased to 679 from 464 two years ago. Aaron Vera, a commercial officer of the Mexican embassy in Tokyo, predicts this figure will grow to 800 by 2015.

Japanese banks are taking advantage of Mexico's currency exchange rate and the interest rates that come from making foreign loans. The average rate for a loan in Japan is .887 percent. But Japan wants to charge more for Japanese investors in Mexico

"There's a chance to improve margins somewhat with loans to support overseas expansion of domestic companies," said Mana Nakazora, the chief credit analyst at BNP Paribas SA in Tokyo, according to the Japan Times.

For example, the Bank of Tokyo-Mitsubishi UFJ Ltd. is charging 4.56 percent for peso commercial lending in Mexico.

Japan's 10-year benchmark yield on a Japanese bond is about .64 percent - the lowest rate in the world. In Mexico, the yield is 6.26 percent.

In other words, Japanese banks are able to make money in Mexico through the exchange rate.

"There aren't many cards Japanese banks can play to boost profits with little prospect of domestic lending increasing that much," said Nakazora. "Increasing lending overseas to capture higher returns is one way Japanese banks can survive."

Americans need to take stock of offshoring advantages
Japan isn't the only country that Mexico would help with its expansion. America is Mexico's biggest export market. Additionally, many car companies from America are moving there. American companies should take advantage of this and begin offshoring to Mexico. They can get help and resources from offshore shelters that will explain the rules, find the best places for opening up factories and making the transition simple.


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