"Within one month our revenues had jumped over 50%."

Mexican Manufacturing

For the longest time many multinational companies considered Mexican Manufacturing to be a solid machine that produced cheap products for vast American markets. It was cheap, close to the U.S., and had little regulation. But as China opened up, businesses started shifting their operations to China in order to take advantage of even lower labor costs and a government that seemed eager for foreign investment. Is Mexico a better place to outsource to than China or does China still have a hold on the outsourced labor market? More and more companies are moving their operations back from China to Mexico, for exactly the same reasons as before but also for additional bonuses. In the early 2000’s, as China began to take jobs away from Mexico, Mexican officials knew they had to act fast to stay in the global race. Quietly and steadily, they have. Over the past 10 years, the country’s policymakers have been building up enrollment in four-year degree programs in engineering, developing a network of technical institutes that confer two-year degrees, and expanding advanced training programs with multinationals from the US and other technologically advanced countries.

As a result, Mexican universities have been producing huge numbers of engineers, with nearly half a million Mexican students enrolled in engineering programs across the country. The students benefit from high-tech equipment and materials donated to their schools by foreign companies, which also help develop curriculum content to fit their hiring needs. As a result, many of these engineers graduate trained for the market and with fluent English language capabilities. Something that Chinese engineers sorely lack, with few having any English fluency and skills desired by foreign businesses. For example, business costs for retraining Chinese engineering graduates tend to be high, since most of these students have gone through intensive rote learning that is common throughout Asian schools.

With rising labor costs, high inflation, and a less friendly government atmosphere in China. Businesses are either moving their operations to other low cost bases or shrinking their operations in China. If you factor in the rising sea transportation costs, China looks far less appealing in comparison to Mexico. With Mexico’s greater technical expertise, it is slowly starting to become a hub not just for low-tech but also high-tech manufacturing. These trends are changing the way multinationals view the country. They are now shifting more complex production to Mexico. According to Businessweek, companies like General Electric, General Motors, Honeywell, and Delphi have built large R&D centers employing hundreds of Mexican engineers to carry out sophisticated design modifications and handle the testing of everything from new car models to military and commercial jet engines. But for all its strengths, there are still bigger worries that investors have about Mexico.

The cartel wars in Mexico have scared away a fair share of investment, with many businesses worried that the violence could spill over in business areas. But for all its dangers, many businesses are sticking through the crises. In fact, most of the cartel violence is confined to the cartel members and the police/politicians that stand in their way. As a result, their is little spillover violence, except for the occasional massacre. While the security situation is poor in most of the country, that has not stopped businesses from expanding their operations in Mexico. The risk of violence is something that businesses are willing to take considering that the manufacturing costs in China are increasing and their are still quality issues.

So for all its problems, Mexican Manufacturing is starting to become a welcoming alternative to other manufacturing countries. Many businesses have realized that in the long run its more beneficial to have supply chains that are not stretched out as far. And with Mexico’s more local time zone and increasing english fluency, it seems likely that more and more businesses will shift production to Mexico to take advantages of the increasing opportunity there.

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Author:Globial International Business Team

The Globial International Business Team researches, analyzes, and reports on all things related to global trade and business.


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