After Mexican President Enrique Peña Nieto enacted reforms that dramatically expanded Mexico's capacity to make deals with international drilling firms, major changes began taking place that enhanced the country's ability to compete internationally as a site for offshoring.
According to the International Monetary Fund, Mexico is growing steadily, supported by the industries that come from the U.S. and other parts of the world that build there. For example, most of the major U.S. automakers have factories in Mexico, along with aerospace businesses like Boeing and Airbus. There are also several other reforms that are boosting Mexico's ability to compete internationally, such as its expanded telecommunications systems and its increasingly sophisticated transportation infrastructure.
Coupling this with the North American Free Trade Agreement, which allows tariff-free shipping between all three of the North American countries, it has become much cheaper than China to build in Mexico and ship the products north to the U.S. and Canada. Additionally, Mexico has several ports that access both the Atlantic and Pacific Oceans, along with trade agreements with many other countries, allowing for either heavily discounted or free trade or to nearly every part of the world.
According to Robert Rennhack, the senior reviewer for the IMF's Mexican team, Mexico is becoming a global industrial leader.
"They've (the Mexican leadership) adopted many different structural reforms that are really quite profound and can transform the economy," Rennhack said in an interview with the IMF. "Most importantly, they've completely changed the energy sector. For 75 years this was run by a state-owned monopoly. There was virtually no private sector participation in the energy sector. Now they've opened the door for private participation in virtually all dimensions of the energy sector."
Energy in Mexico will soon be very affordable
Nieto's energy reforms are going to make Mexico a major powerhouse for U.S. companies seeking to begin hydraulic fracturing and other advanced oil recovery techniques. This will cause the price of oil and gas in Mexico to fall dramatically, which will make transportation and manufacturing much cheaper. Companies that use chemicals used to manufacture petroleum will also find that those products will become less expensive as well.
"They've opened the door for private participation in virtually all dimensions of the energy sector."
One organization that is moving to Mexico to begin taking advantage of the energy sector is Shell, which plans to unite with the country's state oil company, Pemex, to begin offshore deep water drilling, according to Euro News. Shell is very optimistic about the drilling opportunities because much of the country's oil reserves are untapped, as Pemex had been unable to utilize the same oil recovery technologies (i.e. fracking and deep water drilling) that companies in Canada, the U.S. and other countries have been using.
Another company taking advantage of energy opportunities in Mexico
Mexican conglomerate Alfa SAB also plans to take advantage of the opportunities that have come from the privatization of the oil and gas industry, The Wall Street Journal reported. The company will work with U.S. and international businesses primarily through investments.
Once the oil industry gets underway in Mexico, it will become less expensive than ever to begin manufacturing in Mexico. The challenge for smaller companies will be to begin offshoring, which is difficult without a shelter company that makes the process easier.