With its close proximity to the U.S., Mexico is the ideal place for businesses to offshore their manufacturing process. Yet expanding to Mexico is not only beneficial to U.S. companies, but to both countries' economies as well. According to CNN, there is a increasing link between the U.S. and Mexican economies as more companies choose to utilize shelter companies to offshore their manufacturing south of the U.S. border. Thanks to the increase in corporations taking advantage of shelter companies, Mexico and the U.S. are becoming interdependent financial partners.
Mexico becomes more than a trading partner
Texas-based news source - The Monitor - recently reported that companies developing maquilladoras, or Mexican factories, in the country are fostering the strong economic link between the U.S. and Mexico. According to the news source, the two countries' evolving economic relationship is creating numerous possibilities for the nations, most notably for manufacturers using U.S. energy and Mexico's labor force to produce high-quality goods.
In a meeting with local officials in Reynosa, Mexico, Jim Darling, mayor of McAllen, Texas, said the developing relationship between Mexico and the U.S. through the construction of new plants, such as one in Reynosa, are key to recovering both economies post-recession.
"Mexico is more than just a trading partner with us," Darling said. "They are part and parcel of our manufacturing and our employment. I wish I could take some senators and congressmen from up north and show them this [new] plant and see how happy they'd be. It's important: what happens in Reynosa is good for McAllen."
The two countries are intrinsically linked due to their close geographic proximity as well as the significant influence that manufacturing has on the economies. The Monitor reported that the U.S. and Mexico industries are so aligned economically that when the U.S. saw the automotive industry decline in recent years, it also affected Mexican manufacturing.
Economic link between the two countries
According to CNN, current legislative reforms in Mexico are providing many benefits for U.S. companies that choose to expand to Mexico. In a recent report from the Woodrow Wilson International Center for Scholars, approximately 40 percent of products and content imported from Mexico to the U.S. originates in the U.S.. Although there is a growing use of an "Hecho en Mexico" - or "Made in Mexico" - label on items, many of the products created in Mexico come from U.S.-based companies. The report, "Working Together: Economic Ties Between the United States and Mexico," cited U.S. and Mexico investments in each other's economies have resulted in job creation in Mexico and enhanced revenue streams for U.S. businesses. Mexico's close geographic proximity to the U.S. allows U.S.-based businesses to keep transportation costs down, allowing them to save valuable financial resources. In addition, expanding to Mexico allows businesses to cut costs through employee wages, which are significantly lower in Mexico than the U.S. despite the Mexican labor force's refined skill sets.
In fact, The Monitor reported that labor costs in Mexico are as low as about $2.42 per hour, which is on average $5 less than the U.S. minimum wage. With U.S. businesses using shelter companies to expand into the country, the U.S. and Mexico are set to continue their relationship. Companies that offshore their manufacturing to Mexico are not only able to utilize U.S. resources, such as energy and transportation, but Mexican advantages like its experienced labor force.