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Manufacturing in Mexico

mexico manufacturing, benefits of mexican manufacturing, mexico us economies

The US Benefits of Mexican Manufacturing

mexico manufacturing, benefits of mexican manufacturing, mexico us economies

Since the passing of NAFTA in the 1990s, the economies of Mexico and the US have grown increasingly interdependent. Although Mexico and the US are sometimes painted as economic competitors in political rhetoric, with the loss on the part of one reflecting a gain on the part of the other, the benefits of Mexican manufacturing cannot be overstated.

Primary Benefits of Mexican Manufacturing

Mexican manufacturing benefits the United States in numerous ways. This is illustrated especially in the automotive sector, in which both countries work together on the same vehicle preparing it for export (often to US markets). High levels of vertical specialization are reflected in the value chain for an automobile which typically crosses the US-Mexico border eight times before it is finished. This and many other benefits are created by a unique partnership in which Mexico attracts global investment and then enlists the aid of US workers to create value. Below is a partial list of these benefits:

  • US-Mexico trade is valued at approximately $1 billion USD per day.
  • The total value of goods and services sold to Mexico annually is estimated at $2.3 trillion USD according to the Brookings Institute.
  • This supplier relationship supports over 11 million jobs.
  • Nearly half of all US states sell $1 billion USD to Mexico per state annually.
  • A more open oil market in North America reduces oil prices for the region.
  • Regional trade overall increased from $290 billion USD at the signing of NAFTA in 1994 to present levels of $1.1 trillion USD. This was partly driven by Mexico’s significant growth levels.
  • 40 cents of every dollar spent on imported goods from Mexico goes to US workers who produced much of the inputs used in those goods.
  • The US sells more to Mexico than to all BRIC countries combined.

The US-Mexico Regional Partnership

The world is becoming increasingly global and interdependent. And a strong North-American partnership is crucial to competing on such a scale. The unique partnership between the US and Mexico has proven to be invaluable in competing and very beneficial for both countries. The benefits of Mexican manufacturing are apparent for the US, which in turn benefits Mexico with a vast consumer market and technological expertise. With a combined total of over 50 free trade agreements with major economies in both Asian and Europe, the regional cooperative is a formidable competitor on the global scene. The benefits of Mexican manufacturing on both Mexico and the US must not be overlooked.

companies exiting California, moving to mexico, manufacturing in mexico

Study Reveals Companies Exiting California

companies exiting California, moving to mexico, manufacturing in mexicoA recent study has been released answering the question, why are companies exiting California? This troubling trend has been growing for several years, and there are several contributing factors. Once the epitome of commerce and business growth, California is losing companies at an alarming rate. And many of those countries are setting up shop just south of the border.

The Number of Companies Exiting California

In 2015, a 7-year study was released by the Spectrum Location Solutions organization led by Joseph Vranich. In this report, conducted between 2008 and 2015, the number of companies exiting California, based on publicly known disinvestment events, is officially at about 1,700. However, according to Joseph Vranich, the real number of companies shunning or leaving the state is actually much higher:

Experts in site selection generally agree that at least five events fail to become public knowledge for every one that does. Thus it is reasonable to conclude that about 10,000 disinvestment events occurred during that period.

Those leaving the state are small companies, medium companies, and even major players like Toyota, Comcast, and others. Los Angeles is the worst-hit area, with some of the other heavily impacted areas including Orange County, San Diego, San Francisco, and San Bernardino.

Why Are Companies Exiting California?

The Spectrum Locations Solution report doesn’t just detail the problem. It also identifies key motivating factors driving this exodus from the Golden State. According to the report, the following are the top five considerations for companies exiting California for fairer shores like Mexico and other locations:

  1. Taxes:

    California’s tax regime is growing more complex and prohibitive, and the past few decades have seen a pattern of frequent tax increases.

  2. Wages:

    While California’s school teachers are the highest paid in the US, their prison guards enjoy six figures, and state workers retirement pensions higher than their base salary, the state seems further determined to continue raising labor costs. A $15 minimum wage goes into effect in five years, and companies cannot afford to keep up.

  3. Unions:

    California has had a union problem since the 1980s, and their power continues to increase rapidly. Companies hiring in California now face extremely prohibitive benefits packages and inflexible labor regulations.

  4. Red Tape:

    Opening a small business in California typically takes upwards of two years. Red tape and the price of ongoing compliance and reporting is driving companies to exit the state.

  5. Environmental Regulations:

    New Cap and Trade rules go into effect next year. Many companies already find California’s Environmental Quality Act (CEQA) to be too burdensome and costly. It is now commonplace for plaintiffs in spurious lawsuits to win – sometimes as much as half the time. Even losing plaintiffs do not have to pay the defendant’s legal fees.

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Mexico’s Part in a Global Manufacturing Hub

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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

Mexican Manufacturing

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
peso devaluation, peso devaluation effect, currency devaluation mexican manufacturing

Maquiladoras More Attractive as Mexico’s Peso Slides

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Mexico is one of the most popular locations for export manufacturing, due to a number of strategic advantages, such as low labor costs, proximity to the US consumer market, and skilled labor. But another advantage is taking shape in the form of a sliding Mexican peso, an additional incentive for US manufacturers looking to cut costs. The resulting peso devaluation effect is making Mexico’s maquiladoras even more profitable and promising for future investment.

The Sliding Peso

The peso is sliding at an historic rate. Some analysts believe this slide will continue for at least another year or two, as profitability for US companies manufacturing there rises due to the resulting peso devaluation effect. Mexico derives approximately 80% of manufacturing inputs from US companies, ensuring a relatively stable supply chain. But the cost of labor in Mexico is getting lower and lower as the peso continues to decline. Economists and financial experts have concluded the primary drivers behind the sliding peso include:

  • Expectations of rising interest rates by the US Federal Reserve
  • The issuance of more debt by Mexico’s central bank due to the falling price of oil
  • Uncertainty regarding the financial situations in Europe and Greece
  • The uncertainty regarding the peso leading Mexicans to exchange them for dollars, thus compounding the devaluation

The Peso Devaluation Effect

Human capital is a fundamental component of business. Therefore, manufacturers on the global market must look for opportunities to cut costs wherever they can in order to remain competitive. US companies are finding Mexico’s low labor cost and numerous other incentives ideal for investing in the Latin American country. Because of the country’s unique maquiladora system for foreign manufacturing, Mexico affords the opportunity for seamless partnership between foreign investors and Mexican manufacturing plants.

However, as the peso slides against the US dollar, the resulting peso devaluation effect increases the profitability of spending US dollars in Mexico. The maquiladoras have lately become an even more popular option for US producers because of this shift. Right now, the ratio sits as 19 pesos to the dollar, making for an historically low rate of exchange. Subsequently, the cost of buying manufacturing labor is dramatically lower, driving profit higher. This peso devaluation effect is similar to previous devaluations, such as the 1994 currency crisis. During that period, US manufacturers invested in Mexico at unprecedented levels. And the trend seems to be repeating.

Chinese Manufacturing Moving to Mexico?

By Adina Moloman

Chinese and other Asian countries are joining in the growing trend to invest in manufacturing in Mexico. New investments or expansions are announced regularly for companies in Europe, South America, and around the world – and now Asian countries like China are seeing manufacturers make the switch. Why are they moving to Mexico?

Reasons Chinese Manufacturing is Moving to Mexico

The manufacturing boom in China has slowed down dramatically, and Chinese companies are seeking for alternative methods of increasing efficiency and productivity to impact the bottom line. Like companies from around the globe, Chinese companies are achieving just this simply by moving to Mexico. The top reasons driving this move include:

  • Free Trade Agreements: Mexico is uniquely positioned as an export base due to their 40+ free-trade agreements (FTAs) in place with countries around the world. Mexico is also a signatory to the NAFTA and TPP.
  • Reforms: Mexico has made great progress in recent years in overhauling its transportation and energy infrastructure, commercial-law regime, energy sector, and labor laws.
  • Labor Advantage: While China’s labor costs are rising, Mexican productivity is rising steadily. Wages have remained stationary during this recent period and are now lower than those in China.
  • Proximity: Mexico shares a border with the largest consumer market in the world. Furthermore, Mexico is highly integrated with the US economy, providing unique positioning for partnership with US industry for those companies in China moving to Mexico.

A Mexico-China Partnership

China is only the latest in a wave of foreign countries with manufacturing companies moving to Mexico, but the country is pushing to make it count. Frequent news are routinely announced of yet another Asian company choosing to produce in Mexico. China’s Hisense Co. announced they were doubling their Mexican investment earlier this year, for example, and several other electronics brands are following.

Due to the benefits of moving to Mexico previously listed, China has recognized its mutual goals and complementing assets with Mexico, and is pushing for a partnership. Mexico is has been very friendly to their efforts. In fact, just two years ago, Mexican President Enrique Peña Nieto made a highly visible trip to China to meet with the Chinese president and discuss ways Mexico could help their “strategic partner.” The two manufacturing countries have much in common. For example, while China imports most of their energy, Mexico is a net exporter of petroleum. Due to this budding partnership, we are likely to see continued movement into the Latin American country from China and her Asian neighbors.

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4.9 Million US Jobs at Stake in Mexico

Mexico creates US jobs, US Mexico partnership, Mexico manufacturing US jobsBy Adina Moloman

Mexican trade accounts for approximately 4.9 million jobs in the US. Unfortunately, leaders on the US political front are not always cognizant of the facts governing this highly complex partnership between the two North American countries. Mexico creates US jobs, but those jobs depend on upon a system of cooperation that could disappear without care for a better understanding of this unique relationship.

Political Mischaracterizations

Listening to US political rhetoric leaves one with a general fear that Mexico is taking away US jobs. Some of the measures being called for include:

  • Imposing 35% tariffs on Mexico
  • Blocking remittances to Mexico from workers in the US
  • Building a border wall to stop the influx of Mexican immigrants
  • Abrogating NAFTA

In addition to be unrealistic and misleading, these mischaracterizations of the economic situation in North America overlook the fact that Mexico creates US jobs. 4.9 million US jobs depend on a healthy relationship and cooperative partnership with the manufacturing country. The threat is that remarks and intentions expressed in recent, national politics in the US could spark a trade war with Mexico and China. And this sort of a trade war could cost the US up to 4.8 million jobs here at home, according to a study recently released by the Peterson Institute of International Economics.

How Mexico Creates US Jobs

According to a project by the Woodrow Wilson Center’s Mexico Institute, approximately 4.9 million US jobs depend on trade with Mexico. Mexican manufactured goods typically use approximately 40% of their inputs from US manufacturers. In Chinese goods, that number is 2%, and in the European Union, it’s only 2%. Because Mexico has duty-free access to US products, the country relies heavily on US-made parts to produce the finished product. This means Mexico’s gain is also a gain for the US.

This a real and tangible link between the two countries. In 13 US states, at least 100,000 net manufacturing and service jobs come from trade with Mexico – and that number is over 300,000 in several states. Each and every minute, over $1 million USD in trade crosses the US-Mexican border, accounting for an annual trade total of nearly $600 million USD. This is dramatically higher than the rate of US trade with the rest of the world.

Political discussions of how to improve the jobs situation in the US should keep in focus the fact that Mexico creates US jobs. Politicians should note that approximately 57,000 US companies employing 4.9 million workers depend on a healthy and ongoing trade partnership with Mexico.

medical device, medical device manufacturing, tijuana manufacturing

Tijuana Medical Device Manufacturing Growing

By Adina Moloman

Mexico has a well-established memedical device, medical device manufacturing, tijuana manufacturingdical-device manufacturing industry, but growth trends in Tijuana and Baja California are growing at exceptional rates, resulting in new investment and optimism for the Latin American country’s economic future.

Tijuana Leading Baja in Medical Device Manufacturing

While Mexico has facilities manufacturing medical devices throughout the state of Baja California, Tijuana stands out as the clear leader within the region. The border city is 44 of the 69 medical device plants in the state. And Tijuana alone employs nearly 42,000 workers in the industry, within a state that employs approximately 54,000 in medical device production.

For three decades, the border town has been an active player in the industry, and now hosts numerous companies producing innovative and vital products ranging from artificial respirators to catheters to catheters to electronic devices. Some of the world’s leading companies supplying medical devices to the world take advantage of Tijuana’s ideal manufacturing and business climate, from Augen to CareFusion to Flextronics to Lancer Orthodontics. And this list is growing rapidly.

  • Foreign direct investment (FDI) certainly reflects this strong growth, and new investments in Tijuana are announced regularly. A couple of the more recent foreign investments announced for the medical device industry in Tijuana include:
  • French firm, Essilor, is currently putting the finishing touches on a new production facilities.
    Greatbatch Medical has invested US $35 million for the purpose of moving three additional production lines to the region.

Growth Drivers

Currently, the value of manufactured for the medical device industry in Mexico sits at an impressive $1.5 billion USD. And according to a recent study, this output will reach more than $2.1 billion USD by 2020. Tijuana and the state of Baja California lead the nation when it comes to the manufacture of devices and products related to the medical and healthcare industries, but they are not alone in propelling Mexico forward on this front. The other regions also contributing to Mexico’s success in medical device manufacturing are:

  • Chihuahua
  • Jalisco
  • Mexico City and the State of Mexico
  • Morelos
  • Nuevo Leon
  • Tamaulipas
  • Sonora

There are several factors driving this continued growth in Mexico, from low energy costs to low labor costs to the country’s enviable trade agreements in place with much of the world. And in Tijuana and Baja California, the growth drivers include:

  • Baja California’s low logistics cost
  • The region’s low labor rates
  • Tijuana’s proximity on the border to the vast consumer market in the US
  • Rising production costs in other areas
Mexican Maquiladoras

Medical Devise Industry continued growth in Tijuana

Manufacturing in MexicoBy Adina Moloman

Sources: SEDECO

Essilor International S.A., which manufactures and designs a wide range of lenses to correct and protect eyesight, is expanding its operations into Tijuana, Mexico.

The company, located in Charenton-le-Pont, France, will lease a new building and purchase additional equipment for the production of the corrective lenses for prescription eyeglasses to meet the demand for its products. The target market for its products is the west coast of the United States.

Construction of the new facility to expand their Manufacturing in Mexico presence is expected to be complete next year.

In Mexico they established 30 years ago a manufacturing plant in Chihuahua and also installed a few years ago the Ecco Essilor Chihuahua Optical Lab.

One of the latest challenges at the Chihuahua plant was the development of a polarized product line.

Essilor worldwide has more than 55,000 employees in 62 countries and manufacture 430 million lenses every year, spanning 630,000 model references.

Tijuana, Baja California has become one of the leaders in the manufacturing and assembly of medical devices worldwide. The new investment decision confirms the confidence on the medical devices industry in Mexico.

Manufacturing in Mexico

Wave power plant project in Baja California

Manufacturing in MexicoBy Adina Moloman

Sources: www.renewableenergyworld.com, California Energy Commission, Ocean Energy Systems-Annual Report 2014, Mexico Now, World Energy Council

Wind and solar energy currently dominates the renewable energy sector in Baja California and probably worldwide.  Ocean energy is estimated to be one of the fastest growing forms of renewable energy in the next ten years and will contribute to the world’s future sustainable energy supply. According to the World Energy Council, wave energy has the potential to contribute 10% of the entire need for electricity globally, with an investment cost of $800 billion.

Mexico is creating the environment for a complete sustainable energy transition in which clean technologies like those of ocean energy will be supported.

Wave energy is a relatively new technology and therefore there are only a few prototype devices installed worldwide.

A foreign company from Finland AW-Energy presented a wave power plant project, which consists in the design, construction and commercialization of its WaveRoller technology, which converts wave power to electricity. In fact, they currently are negotiating with both the Federal and Baja California’s State Government for the implantation of its wave power technology at sites in the state. Their technology consists of a vertical buoyant flap hinged along its bottom edge to a structure on the sea bottom. The flap moves back and forth in the waves, operating a piston pump on the seabed. This is a method to harness near-shore bottom waves.

This project would attract an investment of approximately US$60 million.

The wave energy project will be Mexico’s first and it is expected to function as a pilot program. If it proves successful, a commercial power plant will be constructed.

Baja California has a particular interest in developing wind technologies where The Center for Scientific Research and Higher Education of Ensenada (CICESE) has developed nine buoys off the Pacific coast of North America capturing wave data.  The center is in the process of creating a more detailed map of wave data for the region to support proposed wave projects in the state. Baja California has the potential to create a national hub for the renewable energy sector with similar potential as the Manufacturing in Mexico Sector has strengthen all the participating partners in Tijuana and the rest of the state of Baja California.

 

Mexico Manufacturers

New partnerships and investments for Baja California aerospace sector

Mexico ManufacturersBy Adina Moloman

Source: Aerospace Cluster of Baja California

Baja California delegation took part again at this year’s edition of the Paris Air Show that was held from at Le Bourget Exhibition Center.

The International Paris Air Show is one of the oldest and largest air shows in the world, where were presented the newest technologies of the aerospace industry and related equipment. The first four days of the Show where reserved for trade visitors, followed by three days open to the general public. The Baja California Aerospace Cluster during the Show has concluded a successful business agreement by signing of a Memorandum of Understanding with the Centro para a Competitividade e Inovacion do Cone Leste Paulista (CECOMPI), The Brazilian Aerospace cluster. By meeting with Brazilian aerospace representatives and by signing this agreement with CECOMPI, Baja California is developing key partnerships for collaboration between the aerospace and space industries in Mexico and Brazil. First they have in mind to attract in the state Embraer, Brazil’s largest aircraft manufacturer.

Other good news for the aerospace sector in the state of Baja California where revealed during a press released by the Baja California Governor and consisted on future aerospace investments in the state. Triumph Group, a manufacturer of aircraft components and accessories, who already has a plant manufacturing in Mexico, installed in Mexicali, announced that it would invest in a new manufacturing site in the same location. The second manufacturing plant in Mexicali will manufacture parts of complex shapes using composite materials that are becoming essential in the aircraft manufacturing process.

UTC Aerospace Systems designs, manufactures and services integrated systems and components for the aerospace and defense industries announced its second facility in the state of Baja California. The new plant will commence operations next year at a 160 thousand square foot facility.

GKN Aerospace a leader in the manufacture of highly complex composite and metallic aero structures and engine products is also considering a second manufacturing facility.

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