What Makes Mexico a Global Manufacturing Superpower?

Commentary by Doug Donahue

A recent Bloomberg Businessweek article by Peter Coy did a great job of succinctly laying out the strengths of Mexican manufacturing. The article is an excellent overview about why Mexico is now the most talked-about destination for offshore manufacturers in the world.

Paraphrasing Coy, here are the four chief advantages that Mexico affords foreign manufacturers looking to lower operating costs while also enjoying topline growth:

1. Mexican manufacturing wages are lower, when adjusted for productivity. Mexican workers have long been more productive than their Chinese counterparts. But only within the last couple years have Chinese workers become more expensive than Mexican workers. Boston Consulting Group predicts that by 2015, Mexico will be as much as 29% less expensive than China.
2. Mexico has the most free trade agreements in the world. Mexico’s trade agreements covering 44 countries are more than the US (20 partners) and China (18) combined.
3. Mexican manufacturing benefits from lower energy costs. China pays 50-170% more than does Mexico for industrial natural gas. Electricity in Mexico also costs less than in China.
4. Mexican industrial clusters, chiefly automotive and aerospace, are growing. Mexico has developed highly specialized, national expertise in certain industries, making it even more attractive as an expansion point for companies. For example, 89 of the world’s top 100 auto parts makers have production in Mexico.

This final point in the article is one that I find most interesting. Mexico’s move toward manufacturing clusters creates a self-fulfilling effect. This effect, call it snowballing, results in a greater “stickiness” in certain regions, making it even more difficult for companies that serve the big manufacturers or the biggest supplies NOT to have a presence there.

It also results in greater stability in such regions, as leading engineers and other indirect workers can make their home in such areas, confident there will always be a need for their services. Finally, such clusters result in increased demand further down the supply chain, presenting stable opportunities for Tier 1, Tier 2 and Tier 3 suppliers.

Source: Bloomberg Businessweek

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