Manufacturing in Mexico has expanded rapidly in recent years, giving China and other Asian nations the first serious competition they’ve seen in decades. The rising cost of fuel, combined with higher wages in some Asian nations, has encouraged a growing number of major international corporations – especially those who manufacture heavy industrial items – to move their overseas manufacturing operations to Mexican maquilas (assembly and manufacturing facilities) in order to take advantage of the nation’s close proximity to the U.S. and affordable, highly skilled labor force.
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“Global producers of everything from cars and auto parts to aviation technology, medical devices and home appliances are establishing maquilas in Mexico to be closer to U.S. markets,” writes the Albuquerque Journal. “The rapid growth is creating new industrial hot spots, where companies are flocking to set up new facilities.”
Basically, this involves a re-shoring of industry from China to Mexico that is affecting every sector; from manufacturing and transportation to warehousing and technology. The growth is already creating “huge business opportunities” on both sides of the 2,000-mile U.S.-Mexico border, where a variety of new companies are establishing operations to supply goods and services for Mexico’s manufacturing sector.
Producers of heavy goods were among the first to make this shift, since items like automobiles and large home appliances have been most affected by the rising cost of fuel. Setting up shop in Mexico allows for greater operating efficiency and lower shipping costs, which ultimately leads to greater profits – all good things in today’s still somewhat uncertain global economic environment. Add to this the fact that Mexico has an impressive network of 11 free trade agreements covering 43 countries, in addition to economic completion agreements with 6 nations, investment promotion and protection agreements with 2 nations and double taxation treaties with more than 31 countries, and it’s easy to see why Latin America’s second largest economy has become so attractive to international corporations in recent years.
“Other pressures include the strengthening of Chinese and some other Asian currencies against the U.S. dollar, which makes exports from these countries more expensive, and the length of time it takes to transport goods from those places to North America,” writes the Albuquerque Journal. “All of that is providing huge competitive advantages to Mexico.”
Not surprisingly, these events have sparked a rapid influx of foreign direct investment (FDI) dollars pouring into Mexico’s maquilas, which attracted nearly $13 billion in 2013 – close to double the numbers from 2012, which hovered around $7 billion. 2013 also marked the highest level of FDI since 2007, and the recent manufacturing surge is the first time in almost 50 years that production in Mexico has provided a much more favorable, cost-effective environment than producing goods in China or other Asian nations.
In recent years, Mexico’s manufacturing operations have also gained in sophistication and offer a more diverse array of options and technological expertise for international businesses. For example, Mexico is now the world’s number one exporter of flat screen TVs and refrigerators with freezers, and is the world’s fifth-largest producer of auto parts after displacing Japan in early 2014, with experts predicting that it will soon displace Canada to claim the number four position globally. And all of this also happens to be great news for the U.S., which shares close economic ties to Mexico.
“The growth and diversification of Mexico’s maquila industry is a boon to the U.S. border economy, and to U.S. manufacturing in general, given its deep-rooted connections to U.S. production and investment,” writes the Albuquerque Journal.