Why Tier Suppliers Should Happily Follow the (FDI) Money to Mexico

Commentary by Doug Donahue

According to a recent article in Area Development magazine, Mexico has a projected growth rate of 4% for 2013-2019 with inflation under control. Mexico is one of the western hemisphere’s most promising countries for global investors.

Foreign direct investment (FDI) in Mexico is strong and, equally important, diverse, occurring across many sectors of the economy. Due to NAFTA, almost half of all the FDI in Mexico comes from US investors. It is easier for Canadian and American investors to invest in Mexico, whether for setting up operations or acquiring Mexican firms, as the trade pact has eliminated some barriers to entry.

Another reason FDI continues to flow into Mexico is because the country participates in a total of 44 trade pacts globally, with countries and regions ranging from South and Central America to Europe to Asia. Investors love this type of diversity, giving Mexico a better chance of weathering a downturn in a single geographic area.

For tier suppliers, the trend that is most interesting with respect to FDI flows into Mexico is that of nearshoring. Rising costs in China, in both labor and transportation, have strengthened the nearshoring trend that is further helping drive foreign investment into Mexico. A 2013 survey of manufacturing firms by AlixPartners found that Mexico and the US tied as the most attractive nearshoring destinations, with Canada a distant third.

For smaller tier suppliers, particularly those making more labor-intensive products like wire harnesses, the stronger draw in Mexico is the center of the country. There total operating costs may be 40% lower than they are near the border.

Source: Area Development

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