News, Insights and Best Practices for Manufacturing in Mexico

Mexico Works to Build the Best Place for Manufacturing

19 Jun 2014

Category: Labor & Economics

Mexico is working hard to create the best possible site for global manufacturing companies. It is building its energy infrastructure, expanding its international presence and eliminating monopolies at home.

Making energy big business
Mexico is on the cusp of a major energy expansion through the investment of foreign energy companies, according to Business News Americas. The country will receive $18 billion dollars in investment from firms that want to build facilities like shale drilling sites and deep-sea oil rigs. They will also build infrastructure like new electric power lines and gas pipelines.

This investment, the article cited, will produce 500,000 new jobs in Mexico by 2018, and 2 million by 2025, according to a press release be the Business Coordination Council of Mexico.

The additional oil and gas pumped out of the now untapped sites will enrich Mexico with more energy than it has now, which will reduce energy costs.

Pemex leads the way
Petroleos Mexicanos, or Pemex, has been on the forefront of this work. The state-owned energy company is encouraging foreign investors to buy up sites where oil and gas can be drilled, and it is also beginning to expand its exports. Not only has the company started exporting to the U.S. West Coast and Hawaii again, but it is also exporting to Switzerland's Cressier refinery, according to Fox News.

According to a press release, Pemex will begin shipping in July and continue for six months, Fox News reported.

Pemex's goal is to diversify and branch into other foreign markets. In 2013, it exported an average of 1.24 million barrels of oil per day in 2013, which generated revenue of $52.58 billion.

Pemex will begin shipping high-grade crude to Europe by January 2015, according to the source.

Other signs that Mexico is expanding its networks
The Mexican government has also continued on its road to making connections with cities and countries around the globe, with a delegation from Mexico City sent to Chicago on May 19, 2014 to discuss plans for how to strengthen ties between the two cities.

"Cities and mayors need to act like businesses  ... and create partnerships that support the way economic development is done," said Amy Liu, a Brookings Institution senior fellow. "It will be good for both markets."

Mexico City and Chicago already have strong ties. The two cities Chicago trades with the most are Mexico City and Toronto. Additionally, Chicago Mayor Rahm Emanuel has already signed a deal with Mexico City Mayor Miguel Angel Mancera that will further the economic relationship of the sister cities. The deal calls for joint initiatives in trading, investments and innovations - particularly in regard to manufacturing.

"For Chicago to remain a world-class city and to keep our economy competitive, we must strengthen ties with our largest trading  partners and create new opportunities for businesses to thrive," Emanuel said in a statement.

Mexico is breaking up its oligopolies at home to open up foreign investments
Mexico is not only working abroad, but it is also making improvements at home to encourage trade and the development of key industries. It has recently passed laws that would make it difficult for large monopolies to exist as they have. For one example, Carlos Slim, owner of América Móvil, is now facing challenges from AT&T, which recently announced that it would sell its $6 billion stake in América Móvil, according to The Wall Street Journal. Slim, the second-richest man in the world, has a monopoly over much of the telecom industry in Mexico, but Mexican President Enrique Peña Nieto, has been choosing to support smaller companies for a long time. Recently, according to Forbes, the Mexican government rejected by a bid by Slim's construction company, even though it offered the best deal out of all the bids for a public works project.

"The first public work bidding under President Enrique Peña Nieto … bears what seems to be the hallmark of the current presidency: a blow against businessman Carlos Slim," wrote columnist Raymundo Riva Palacio in Mexico's leading financial daily El Financiero, Forbes reported.

When it comes to AT&T's deal with Slim, it had to sell its stock with Slim's company of América Móvil "to facilitate the regulatory approval process in Latin America," AT&T said.

What this means for those who want to offshore to Mexico
The net result of Mexico's work on all fronts to make connections between foreign countries and end long-standing monopolies on the home front is this: a place where U.S. companies can build factories and make money exporting their products around the world.

Foreign companies have already begun to take advantage of Mexico's advantages by building facilities there. For one example, CertoPlast, a German adhesive tape company, has announced that it will build a new factory in Las Cruces. It is building in Mexico to take advantage of its Foreign Trade Zone designation, which reduces tariffs on items sent to Mexico for manufacturing at maquiladoras.

U.S. companies can take even greater advantage of other trade agreements. For example, the North American Free Trade Agreement allows almost all goods to be shipped tariff-free between Canada, Mexico and the U.S.

Learn more about the Mexican Energy Reform here!

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