For decades, Mexico has been a top offshore destination for manufacturers, but in recent years the country has experienced a boom in foreign investment and new business opportunities. Even though China was the darling of manufacturers for years, Mexico has gained prominence for its skilled labor force, short supply chains and growing specialization in manufacturing heavy products. With the economic downturn now in the past, North American companies are turning their focus to expanding in Mexico. According to the economic business magazine Econ South, Mexico's manufacturing sector will be a key driver of the country's global competitiveness well into the future.
From China to Mexico
Mexico is experiencing many changes due to energy and labor reforms, however, the loss of appeal in manufacturing in Asia is priming Mexico for economic success, Econ South reported. Between 2001 and 2010, Mexico's economy experienced a slump, growing only by 1.6 percent during the timeframe, according to the magazine. With more manufacturers choosing China over Mexico, the country's major industry saw little progression. Yet between 2010 and 2012, Mexico's economy saw a resurgence, increasing at a rate of 4 percent, to overtake Brazil, the other Latin American economic leader. The main factor of this ongoing success is manufacturing growth.
According to Econ South, the total value of products exported from Mexico is equal to all Latin American countries combined, with projections ranking Mexico the No. 10 fastest growing economy between 2009 and 2020. Manufacturing is playing a key role in this growing success, with Mexico's manufacturing industry expanding every year to include new industries. From aerospace and medical devices to auto parts and electronics, Mexico's manufacturing output continues to grow across numerous industries, according to Econ South.
Mexico's future success is closely linked to businesses moving their offshore manufacturing from China to Mexico. According to Econ South, universities in Mexico have more than 900 engineering and technology-related programs just at the post-graduate level. Manufacturing clusters can be home to as many as 10 educational institutions, making Mexican labor one of the most skilled in the world.
Automakers are also improving their current factories and adding manufacturing capacity across the country. North American consumers are poised to purchase more vehicles well into the future, and automakers are readying for the increased demand by keeping their supply chains close to their end markets.
Public Radio International suggested quality products as one of the factors that sets Mexico apart from other offshoring destinations.
"There is an important element here where Mexico is, currently in the automotive industry, associated with good quality, with good products," Eduardo Solís, president of the Mexican Automotive Industry Association, told PRI. "We have been scaling up in the value chain."
It has become increasingly difficult to ship auto parts and other types of heavy goods across the Pacific Ocean from China, but that's not the only reason why Mexico's future as a manufacturing giant is set. According to Reuters, J.P. Morgan recently wrote improvements to Mexico's manufacturing sector drove the country's economic success in recent years, and will remain key to Mexico's economic strength.
"Part of Mexico's healthy recovery since mid 2009 likely reflects the improved competitiveness of Mexico's manufacturing sector – which has outperformed its U.S. counterparts by nearly 6 percentage points since the mid-2009 trough," the bank said.
Increased focus on North American manufacturing
According to Econ South, Mexico owes much of its success to a shift in thinking among North American manufacturers. Consumers and manufacturers alike may no longer be focused on American made automobiles, but may begin to demand North American cars. This will be a critical development for Mexico's manufacturing sector, as the country will be able to produce North American made vehicles quickly and affordably for businesses.