In an increasingly interdependent and regionally minded world economy, Mexican manufacturing growth, coupled with the rise of an increasingly educated US workforce, is propelling the North American region to prominence as a global manufacturing hub.
Regionalism and Mexico
Mexico’s advantages are attractive in and of themselves. But the Latin American country is also forging an alliance decades in the making that allows for what may soon become a huge, North American, economic structure that allows the two countries to compete as a regional player on a global scale. This partnership can present the single most significant player on the global market, making for a global hub for manufacturing for export. Each has something unique to offer the regional partnership:
- Mexico provides inexpensive manufacturing labor.
- The US provides knowledge assets.
It could be said the two economies are so intricately linked across many dimensions so as to be considered almost a single unit. Automobiles manufactured in the North American region have their parts cross the border approximately eight times during the manufacturing process. In fact, 40% of the value of US imports from Mexico comes from the US. This reflects a high level of vertical specialization and partnership between the North American partners. There is a general trend for labor-intensive jobs to flow south into Mexico while design and engineering, etc. tend to flow into the US. Mexico and the US share many things to form a unique partnership that mutually benefits both countries, including:
- Foreign direct investment (FDI)
- Joint ventures
- New sales and distribution offices
- R&D facilities
The regional USMEX economic unit that is forming has the potential to transform Mexico from a mere manufacturing country to the manufacturing base of the next global manufacturing hub. The US and Mexico have been joined as production partners in an increasingly regional global marketplace since the signing of the NAFTA. And since that time, Mexican manufacturing has grown steadily. And while China was the global manufacturing hub and offshoring partner of choice in the 1990s, Mexico is rapidly becoming the new home for manufacturers all over the world.
The reasons for this shift are myriad. Mexico offers global manufacturing several key advantages:
- More free-trade agreements than any other country in the world
- Low, stable labor costs while Asian labor costs rise rapidly
- A large and growing labor pool
- Relatively low energy costs
- Shorter supply lines, faster delivery, reduced transport costs, and proximity with the largest consumer market in the world
- Very strict IP laws, allowing excellent protection for hi-tech and other industries
- Ongoing investment in an educated and highly skilled workforce