Canadian Investment in Mexico’s Manufacturing Industry

In 2016, Canada was Mexico’s second largest trading partner after the U.S., and one of Mexico’s main sources for foreign direct investment. Trade and investment enables both countries to become economically competitive on a global scale. Top Canadian industries prospered in Mexico because of its access to free trade agreements, market growth, and a highly-skilled workforce

Mexican - Canadian Trade

Trade agreements between Canada and Mexico have sparked investment and grown production over the years as opportunities become more available to investors. The North American Free Trade agreement (NAFTA) that passed in 1994 helps promote investment between Canada, Mexico, and the U.S. In 2015, merchandise trade between Mexico and Canada grew to about $28.5 billion dollars, and Canadian direct investment in Mexico was about $11.2 billion dollars USD.

There are more than 3,000 Canadian companies operating in Mexico that belong to multiple industries. The major Canadian industries manufacturing in Mexico range from aerospace, agriculture, automotive, IT, and energy resources; with the top five companies specializing in aerospace, automotive, electronics, mining, and finance. According to the Canadian Trade Commissioner, Canada imports an average of  $23,600,994,576 USD from Mexico annually, and exports an average annual $4,988,298,207 USD to Mexico. Manufacturing production has risen in Mexico and exceeds Canada’s exports to the U.S. Rise in production is attributed to Canada’s investment in Mexico’s growing manufacturing industry and strengthening the bilateral relationship.

Supplier Connection

Mexico provides opportunities for companies to expand their business through a competitive advantage. David McQueen, Management Consultant for Tetakawi, stated how in Mexico, “There are often fewer or no local competitors, and in many cases the demand in Mexico is growing more rapidly than it is elsewhere.” McQueen also stated how the ability to reach and service customers with operations in Mexico is important, specifically for suppliers. For many companies manufacturing in Mexico, closer proximity to customers is sometimes more of a deciding factor than low costs.

The ability to operate closely to a client is extremely important, especially, for example, in the aerospace industry. In 2005 Bombardier opened an aerospace engineering and manufacturing plant in Queretaro, Queretaro. With it, the company invested in the local talent that was coming from the only aerospace university in Mexico, Universidad Aeronautica en Queretaro (UNAQ). As Bombardier became larger, and Queretaro more prosperous, many Canadian companies decided to move to Mexico, and suppliers, and other manufacturers followed. Similar events happened in the automotive industry. According to Automotive News Canada, 52 Canadian automotive companies manufacturing in Mexico operate in 107 facilities as of 2016.  These companies have become hubs for aerospace and automotive manufacturers who export and import around North America.

 Mexican Workforce

Canadian companies have grown and developed in Mexico because of the country's highly skilled employees. According to the Canadian government’s Global Affairs page, one in six jobs in Canada are directly and indirectly related to the import/export market, which contributes to the 5.2 million new jobs created since the signing of NAFTA. These numbers decreased the Canadian unemployment rate in from 11.4 percent in 1993, to 6.9 percent in 2015.  

Both countries are home to different demographics that provide mutual benefits for both labor economies. The growing workforce is fortunate because the majority of Mexico’s population is under 40, while most of Canada is inching closer to retirement. Laura Dawson of The Globe and Mail states, “The Mexican labor force is skilled, reliable, adaptable and efficient - and that makes all of us more efficient.” Mexican employees are known for their powerful productivity at low costs that compete with global economic standards. The cooperation of both labor markets has grown the Mexican middle class, and maintained a comfortable standard of living for Canada.

 Challenges

Although both countries support one another through trade and economic growth, some challenges are presented for Canadian companies manufacturing in Mexico. One factor is overcoming initial risk. There are many logistical and operating factors to consider before deciding to manufacture in Mexico, and coming up with a comprehensive plan will enable a more accessible manufacturing operation. The plan should include help with Mexican market regulations, operational financing, and operational scale. Equally, although both countries are in North America there is a language and cultural barrier that can be difficult to adapt when first establishing a manufacturing presence in Mexico. But because of increased trade and interaction between the two countries, cultural familiarity has been growing the help connect the different communities.  

Canadian companies doing business in Mexico is a partnership that enhances economic production in both countries. As partners, both countries complement each other demographically and enable a better standard of living. Although some challenges may arise, the relationship developed through trade agreements has brought both countries together for the better.