The Clustering Effect in Mexican Manufacturing

Commentary by Doug Donahue

This Risk Watchdog piece in Business Monitor Online looks at fast growth in central Mexico’s manufacturing sector, portraying the region as “set to boom.”

The article points in particular to five main factors driving that growth:
• Strong transport links
• Proximity to Mexico City and easy access to the growing domestic market there
• Low-cost labor, with wages lower than what is paid near the US border
• Regional tax incentives for manufacturers
• The clustering effect

Not to negate the other points, but I think the clustering of certain industries in central Mexico – particularly automotive and aviation/aerospace – could be most important, particularly to tier one and tier two suppliers.

Quoting from the piece: “Finally, we have already started to see the beginning of a clustering effect in some of the country’s larger industries, especially autos and auto parts. This in itself is likely to draw other firms, so that by the end of our 10-year forecast period, we believe the centre of Mexico could be a manufacturing hub to rival the north, bolstering growth in the region.”

This clustering effect is resulting in a snowballing of growth of region. Growth itself spurs further growth, as companies need to be where the demand is. That’s what is happening now in central Mexico.

Source: Business Monitor International

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