| Mexico | Feb 21, 2022
A set of factors ranging from production costs to logistics and geopolitical considerations make Mexico the ideal manufacturing hub not only for US businesses, but increasingly for the entire Western world.
Despite falling out on a handful of occasions over the years, Mexico and the US have been good neighbors over the last century of their existence. From a diplomatic point of view, Mexico City and Washington DC have always regarded each other as allies. This mutual trust was solidified in the 1940s, when Mexico refused to betray its northern neighbor during WWII. These long-standing friendly diplomatic ties have paved the way for a fair number of economic cooperation and businesses opportunities in both North American nations.
Mexico has a robust and reliable manufacturing infrastructure as well as a large skilled workforce who earn wages far below average salaries in the US and Canada thanks to lower living costs in Mexico. US-based business—and increasingly businesses from other Western economic giants—have realized the immense potential of Mexico as a manufacturing powerhouse capable of delivering quality at a reasonable per unit production cost. Thanks to its long history as a manufacturing hub, its ties with tech companies and RD units of big market players, and its highly skilled workforce, Mexico is also a mature manufacturing hub, which differentiates it from its rivals that can only accept low-tech deals. Mexico, as a top-tier manufacturing hub, is home to over 1,000 assembly plants owned by aerospace companies, electronics giants, and automotive conglomerates, among others.
Mexico is well-placed to be a manufacturing hub, with the obvious factor being its proximity to the US. However, Mexico itself has both Pacific and Atlantic ports and is also fairly close to Panama—the world’s undisputed leading maritime transportation hub, whose flag is aflutter over almost 20% of all merchant ships sailing across the seven seas. In plain words, Mexican manufacturers can deliver your orders to any place on the planet, with unbelievably competitive transportation costs. It is no more the case, therefore, that Mexican manufacturers solely work with and depend on US-based businesses. Mexican manufacturers are now working with many businesses based around the world as well as companies in the US.
Despite Mexico’s already well-established reputation as a trusted manufacturing hub, a new set of political considerations are increasing its strategic importance for the US and its allies across the Atlantic. China has experienced an economic miracle since the turn of the millennium and has ascended to become the second-largest economy worldwide, turning itself into the “factory of the world.” Subsequently, Western economies are having second thoughts about outsourcing many of their manufacturing operations to China or other Asian hubs heavily influenced by China.
Mexico is a ready-made candidate for becoming an alternative manufacturing hub for almost any Western company. Whether you run a medical equipment or pharmaceutical company, a world-class car maker, or a high-end fashion brand producing clothes, jewelry, and accessories, rest assured there is a contractor somewhere in Mexico that can deliver your orders that meet the highest standards. Some brands that have outsourced their manufacturing operations to Mexico’s rivals in certain parts of Asia have tarred their brand images by presenting their disappointed customers with substandard products. This is not a risk in Mexico. Mexican manufacturing contractors are well aware that compromising quality for short-term gains is not worth it. Over the course of its competition with manufacturers across the Pacific, Mexico has placed a greater emphasis on quality.
As of December 2021, over 15,000 foreign companies of various sizes and descriptions have set up shop in Mexico, not only in Mexico City and its satellite cities, but in places as far apart as Coahuila, Baja California, and Jalisco, just to name a few. The presence of automotive industry in a country is generally a fair indicator of a nation’s capacity to act as a manufacturing hub, because putting cars together requires the capacity to manufacture a diverse array of components from molded plastic and steel to electronic circuit boards and mechanical precision parts, among many others. A country, in short, must be an all-rounder in the real sense of the word to attract multinational automakers. As of this writing, over 10 major automakers and original equipment manufacturers (OEMs) have launched plants across Mexico, including companies such as the big three American automakers Ford, GM, and Chrysler, as well as Asian and European household names such as Honda, Nissan, Toyota, BMW, and Volkswagen.
In 2022, Mexico’s status as a manufacturing hub is likely to improve due to a variety of reasons. The competition between the US and China is still heated, which encourages American investors to choose Mexico over Asian hubs influenced by Asia’s red dragon. What is more, diplomatic ties between Washington DC and Mexico City are getting stronger under the Biden administration, which amplifies the amount of US investments in Mexico. Mexican manufacturers and part makers, meanwhile, are attracting new customers from the Latam region, Europe, and pro-West Asian economies, creating solid prospects for the Mexican manufacturing industry in 2022-2023.