News, Insights and Best Practices for Manufacturing in Mexico

Why automakers continue to establish assembly plants in Mexico

12 Nov 2014

Category: Automotive Manufacturing, Manufacturing in Mexico

Offshoring has become a buzzword across a number of industrial sectors. Companies looking to continue producing high-quality consumer products while simultaneously lowering operational costs in order to see better profit margins, often look to move the manufacturing portions of their business operations to countries that help to better achieve these goals.

Lately, Mexico has been a prime destination for offshoring activity. However, this hasn't happened by accident. Newly created initiatives and regulations instituted by the Mexican government have been put in place for the express purpose of encouraging companies to make the country the base of their industrial operations.

Nearshore America's "Understanding Mexico's New Shelter Model" report revealed that Enrique Peña Nieto, the country's new president, in his first year in office, successfully got the three major political parties to agree on 16 amendments to the Mexican constitution, also known as the Pact for Mexico.

These changes essentially encourage privatization of the business sector which in turn will have positive benefits for both public and private entities. Simply stated, allowing companies to come in and build manufacturing plants will allow more money to flow through the Mexican economy and open up jobs for people living in the country.

Mexico set to be the world's car capital
There are already a number of products being built in Mexico that are then exported to other countries. However, cars are the one item being manufactured more than any other in the country.

According to Forbes, this year nearly 3.2 million vehicles will be assembled in the country, doubling the output that has taken place over the last five years. This is due in large part to the $19 billion in investment money that automakers have pumped into the country.

Well-known brands such as Mazda, Honda, Volkswagon and Nissan have all established a presence in Mexico, with BMW, Infiniti and Mercedes-Benz expected to follow suit, Forbes wrote. Already ranked eighth in the world with respect to automobile manufacturing, within six years, Mexico is expected to jump to sixth.

"Mexico has become a superpower in cars," Eugenio Madero, chief executive of Mexican auto suspension supplier Sanluis Rassini North America, told Forbes. "It's like 3 million years ago and a meteorite slammed into the Yucatán Peninsula. The sheer size of the investments changes the face of the Earth. One day there's a guy plowing the land with a horse, and now there's a factory there."

Mexico's skilled labor advantages
Another factor making Mexico a popular offshoring destination is the country's education system. Many of the products being assembled in the country require a high level of technical proficiency.

According to the Nearshore Americas report, in the urban areas where many factories are in operation, the literacy rate is 99 percent. As a whole, 97 percent of the people in country can read. As the Mexican educational system continues to place an increased emphasis on teaching students how to speak English, while also focusing on improving technological skills and teaching students about business in a general sense, the talent pool in the country is deepening. As a result, Mexico is positioning itself as a leader in the world's industrial manufacturing sector.


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