News, Insights and Best Practices for Manufacturing in Mexico

Mexico holds major manufacturing advantages over other countries

03 Sep 2014

Category: Logistics Management, Manufacturing in Mexico

Many automakers are moving to Mexico. In a recent example, Kia is expanding production to Mexico some of its U.S. lines, according to the International Business Times.

"The Kia plant in LaGrange, Georgia, is working at capacity, and they had a choice to expand capacity there or follow what the industry has been doing in recent years," Dean Barber, founder of Barber Business Advisors, told International Business Times. "Kia is building at the doorstep of the United States. Another good thing about that is Mexico has more free trade agreements than the United States, about 40."

Mexico has many cost advantages over China and Brazil
Automotive companies are not the only businesses that could benefit from moving to Mexico. According to Boston Consulting Group, it's cheaper to build in Mexico than in China. In fact, the group calls Mexico a "rising star," the Economist reported. On the other hand, China has become more and more expensive because its currency has appreciated. Brazil has also become more expensive to build in than it used to be, according to BCG data cited by the Economist.

As companies begin to take advantage of expanding to Mexico and enjoying the cheaper labor there than in China, other companies are moving in order to take advantage of new business from companies that want to ship goods back and forth across countries. One example of this is the United Parcel Service, which opened a new 78,000 square-foot facility in Mexico. The company does a great deal of traffic across the U.S. and Mexican border, according to the Journal of Commerce. In fact, cross border traffic has been growing, and UPS expects that air cargo between Mexico and the U.S. will grow by 5 percent by 2020. The reason for the growth is that so many companies are moving to Mexico to begin expanding their business by opening factories. Examples of sectors that will see expansion include automotive as well as the technological and pharmaceutical industries.

JOC reports Mexico appears to be reaching a new height after a slow start to the year, which may mean companies like UPS that serve manufacturers will grow in Mexico as U.S-based firms in that country increase their business there.

HSBC considers Mexico to be in a state of rebound
According to HSBC's latest manufacturing purchasing managers' index, August has seen the biggest rise in manufacturing production since April in Mexico. Employment grew, and input cost inflation has decreased to a three-month low. The PMI is currently at 52.1, which indicates an improvement over the previous month, and is also the highest the PMI has been since January. Sales volumes have also grown. HSBC calls August a "solid improvement" over the previous month, and points to an overall trend of growth in Mexico.

CNBC reported Mexico will likely soon experience an economic boost because of the reforms that have been made to the country's energy market, which may lead to increased growth in Mexico for the manufacturing sector. Mexican President Enrique Peña Nieto has opened up the energy market to private investors from other countries, so that previously inaccessible sites such as shale oil deposits can now be fracked by foreign companies.

"Mexican firms have gained in past years because of an improvement in human capital ... but energy costs have kept them from being more competitive," said Carlos Serrano, the chief economist for Mexico at BBVA Bancomer.

Now, however, the cost of Mexican energy will be much cheaper because of the inflow of oil and natural gas from foreign companies.

Those seeking to take advantage of these opportunities should contact a Mexican offshore shelter, which can make expanding to Mexico much easier than if a company goes through the process alone.


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