News, Insights and Best Practices for Manufacturing in Mexico

Mexico, Latin America poised for offshoring

20 Mar 2014

Category: Politics & Regulations

According to Metro News, Japanese and European automakers, rather than American companies, have so far been the leading firms that have invested in Mexico. Part of the reason for this is Mexico not only has free trade agreements with the U.S. but also with 40 other countries around the world. Even with the expenses that come from shipping cars overseas, it is still cheaper to build in Mexico. The inexpensive cost of labor, which is 20 percent less than in other parts of North America, the source cited, is another reason why companies outside the U.S. are building Mexican factories. The fact that America and Canada are so close is just another excellent incentive for foreign companies to offshore to Mexico.

"Canadian plants export almost exclusively to the U.S. whereas in Mexico, they export to the U.S. but more than 20 per cent of their shipments are outside of the NAFTA [North American Free Trade Agreement] region," said Carlos Gomes, senior economist and auto industry specialist for Scotiabank, to Metro News."It's these [markets] in particular that are growing at a faster pace."

Originally, most of the foreign manufacturers in Mexico were American companies that built parts and assembled the finished product in the U.S., according to the article, but now entire vehicles are being built and shipped ready to be sold.

Many companies are offshoring to Latin America
Latin America has also recently become a target for companies seeking to expand their business and save on expenses.

In a recent article by Nearshore Americas (NA), a survey by professional services firm BDO USA found 57 percent of respondents would most likely offshore production to a Latin American country.

Some questions pertaining to this move were answered by Aftab Jamil, leader of Technology and Life Sciences Practices for BDO USA, in an interview with NA. He said that many companies are seeing that Latin America has changed, and that countries in the region are becoming more stable.

"I used to have a client that had a call center in the Philippines and about 18 months ago they switched that over to Latin America," Jamil said. "So from my perspective, not just based on this survey, but also from dealing with tech companies on a day-to-day basis, they are looking at the region a lot more closely now. As the economy and purchasing power grows in places like Brazil, it would be silly to ignore a market like that in your own backyard."

Additionally, according to the survey by BDO USA, a higher proportion of manufacturing companies are outsourcing versus other companies. The reasons cited by Jamil have to do with the cost factor of moving to a country where the price per worker is cheaper. When labor is inexpensive, companies save money. Additionally, Latin American countries are closer to critical markets in the U.S. and Mexico, which makes shipping products faster and less costly than producing in a country like China or somewhere in Europe.

Jamil adds that tech firms are considering moving to Latin America because of the great quantity of skilled workers who are willing to work hard for a less expensive wage than in the U.S., along with the improving infrastructure in many Latin American countries.


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