Mexico is fast becoming the go-to destination for U.S companies that seek to nearshore their products. Expanding to Mexico has several advantages over an offshore plan in China. For example, it has become less expensive to build in Mexico versus China when calculating the cost of shipping products from one place to the other. In Mexico, the only price is hiring a truck, airplane, train or a boat to move the goods north. The time it takes to cross the border is minimal compared with a transpacific voyage, and tariffs for almost all goods are nonexistent. Additionally, China is so far from the U.S. that it becomes difficult to keep an eye on the manufacturing process, and sometimes trade secrets can leak out of the factory. Thus, a company can become the victim of intellectual property theft.
Mexico, on the other hand, has much stricter rules about intellectual property than China, and the country makes it its business to protect foreign investors who build factories for exporting their goods out of the country.
Mexico is slowly gaining economic power
After a sluggish year, the Mexican economy is starting to recover from the cold first quarter. In the second half of the year, many investors predict there will be an increase to interest rates – the first since 2008, according to Bloomberg. If this happens, it will mean that Mexican officials believe the country is becoming strong enough to start advancing toward its goal of becoming a fully developed nation.
"The strong recent data, in particular the second-quarter GDP report, creates more certainty that the next move in Mexico will be a rate hike and not a cut," Bill Adams, senior international economist at PNC Financial Services Group, said in an interview with Bloomberg.
Companies are taking advantage of Mexico now while it is still inexpensive
Several companies are expanding to Mexico. One such company is Kia, which plans to build an assembly plant there for its cars, according to Auto News. The automotive industry is huge in Mexico, with many of the major global brands such as BMW and General Motors manufacturing there.
Auto News reports that Kia will invest $1.5 billion into making the plant, which will have a capacity of 300,000 vehicles produced per year.
Cars are not the only thing that can be built in Mexico, However. Another company moving there is Rocla Concrete Tie (RCTI), a manufacturing company that builds railway products. The company is opening a 30,000 square-foot facility in San Jose Iturbide, according to Railway Age.
The Mexican railway market is an important part of our corporate growth strategy, so when we built our newest manufacturing plant, we did so knowing that we wanted to have the ability to expand our facilities there to keep up with growing demand," said RCTI de México Vice President Eliseo Bandala.
RCTI builds railroad ties for companies like Amtrak and Union Pacific. Because of Mexico's expanding infrastructure, there will soon be a major demand for the products that RCTI builds.