News, Insights and Best Practices for Manufacturing in Mexico

Mexico's automotive cluster continues its rapid expansion

23 Feb 2015

Category: Automotive Manufacturing, Labor & Economics, Manufacturing in Mexico

As developing nations go, Mexico has done well in positioning itself as a leader in competitive manufacturing. Many foreign companies, upon realizing the advantages the country has to offer in terms of producing quality consumer goods at a fraction of the cost, have begun expanding to Mexico to take advantage of these benefits.

There are a wide range of products being manufactured in Mexico, but the automotive sector is arguably the biggest and most profitable. According to the most recent Mexico Automotive summit, the country currently stands as the only vehicle manufacturer in Latin America and the seventh largest in the world. In addition, Mexico surpassed Japan as the second-largest vehicle exporter to the U.S., and 80 percent of the vehicles manufactured in the country are shipped to foreign markets.

"Location is key for automotive companies, because of demand from the U.S.," Manuel Padrón, a partner at multinational law firm Baker & McKenzie, said during the Mexico Automotive Summit. "The government has taken advantage of its geographical location and enhanced it through proper regulation and polices."

"In 2012, 20.8 percent of Mexico's FDI was attributable to the automotive sector."

Indeed, Mexico has positioned itself quite favorably to be attractive to companies considering moving their production activities offshore. The North American Free Trade Agreement might be the strongest selling point. With 45 partnerships with other countries that allow the import of necessary production components into the country and finished goods to be shipped out, both tariff free, this may quite possibly be Mexico's greatest benefit to foreign organizations considering expanding to Mexico.

"You can export duty-free from Mexico to big automotive markets in the world - except China of course - North America, South America, European Union, Japan," Thomas Kraig, Volkswagen de Mexico's vice-president of corporate relations, told The Globe and Mail. "There's no other country in the world that has these kinds of advantages."

In addition, Mexico's labor force has become increasingly adept in acquiring the technological skills and dexterity required to assemble not only vehicles, but a wide range of products used in the aerospace, consumer electronics and other sectors. This is yet another example of why the country's economy is expanding rapidly and why foreign companies - particularly in the automotive sector - are investing heavily in Mexico's manufacturing industry.

A series of automotive vehicles in the shape of minivans is being carried in the air with robotic arms inside a Mexican automobile manufacturing plant . Mexico's automotive production sector may be the country's strongest industrially.

Canadian auto parts manufacturer opens new plant in Mexico
It's not strange in the least that more money is flowing through Mexico's manufacturing sector. Manufacturing companies are more than pleased with the country's highly skilled labor force, and consumers enjoy the quality products that are assembled in Mexico. Because of this, it makes sense that many foreign organizations have reinvested revenue into improving their operational base in the country.

A recent report from Nasdaq revealed that Magna International, one of Canada's largest automotive suppliers, opened a new 130,000-square-foot facility in Morelos, Mexico. The company, which has been doing business in Mexico since 1991, plans to assemble vehicle chassis at its new plant for a number of automakers, including Nissan. As many as 300 people will be hired to work at the new facility, which brings Magna International's total operations in Mexico to 31 plants employing more than 24,000 employees.

"On behalf of Magna, I want to thank the local community and the state of Morelos for their ongoing support and collaboration on this project," the Automotive Business Review quoted Sandro Passera, executive vice president of operations for Magna's chassis and body manufacturing units. "They have helped make it possible for us to continue growing our world-class manufacturing operation, and we are excited for the opportunity to support our customers from this new facility."

Magna International's expansion inside of Mexico's border is in line with what other foreign companies are doing as well. The country has taken great care to offer offshoring advantages that are unmatched by any other nation. From an increased focus on bettering the technical education and proficiency to workers, helping organizations easily begin manufacturing in Mexico by working through an offshore shelter model, to NAFTA, it's understandable why foreign direct investment is so high.

The Mexico Automotive Summit revealed that in 2012, 20.8 percent of Mexico's FDI was attributable to the automotive sector. In addition, as much as $10 billion more will be funneled into Mexico manufacturing operations, with auto makers already accounting for 25 percent of all the country's industrial operations and 4 percent of the country's gross domestic product.

"The efforts made by successive administrations to attract investment have been crucial to the sector, as they have maximized economies of scale," said Gabriel Lopez, Ford de Mexico's CEO during the summit.

Given its proximity to the North American marketplace, a strong, but comparatively inexpensive workforce and the quality of finished products be produced in and shipped out of the country, expect Mexico to be a major player in offshoring activity for years to come and nation that others will find themselves in stiff competition with, sooner rather than later.

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