Manufacturing in Mexico: 10 Factors to Plan Your Launch
November 10, 2021
Mexico is a good location for manufacturing companies looking to balance low costs with high levels of production skills. U.S. companies are increasingly manufacturing in Mexico as a solution to skilled labor shortages and a key part of their strategies for building a more resilient global operation.
Today, Mexico serves as one of the United States’ most important investment partners, according to the U.S. Department of State. The U.S. is Mexico’s top source of foreign direct investment (FDI), with USD $100.9 billion in investment flowing into Mexico as of 2019. This wealth of investment has helped develop a robust manufacturing ecosystem in Mexico.
Below we’ll explain the top reasons U.S. companies are manufacturing in Mexico, the major industries they’re serving, and the regions from which companies can best leverage these benefits.
Top reasons U.S. companies are manufacturing in Mexico
There are many reasons that U.S. companies consider manufacturing in Mexico. Below are some of the top benefits that tip the scales in favor of Mexico:
- Access to skilled workers. Industrialized nations are facing a skilled labor crisis. A 2021 report from Deloitte and The Manufacturing Institute forecasts that the manufacturing skills gap in the U.S. could result in 2.1 million unfilled jobs by 2030 at a cost of as much as $1 trillion. Companies that manufacture in Mexico can secure well-trained labor and often find that this investment in Mexico provides greater security for hiring staff for the U.S. headquarters.
- Lower costs. The low cost of skilled manufacturing labor remains a strong driver for companies considering nearshoring in Mexico. Cost-of-living differences keep hourly wages for direct manufacturing laborers and real estate in Mexico much lower than in the U.S. However, costs are also competitive when pitted against low-cost manufacturing countries in Southeast Asia due to the dramatic difference in shipping costs to reach U.S. markets.
- Easy accessibility. The location has always been a leading benefit of manufacturing in Mexico. Sitting just over the U.S. border, the cost of and speed with which goods are transported to U.S. customers is negligible compared to other manufacturing locations. However, this has become an increasingly critical driving factor for choosing to manufacture in Mexico. Today’s supply chain challenges include port congestion that is delaying the movement of materials to manufacturers and goods to consumers. In addition, U.S. manufacturers are finding location and shared infrastructure provides strong synergy for cross-border industrial clusters.
- Greater resiliency. A trend toward regionalized production is taking stronger hold in many industries. Global supply chain disruptions are pushing more U.S. manufacturers to consider a broad manufacturing footprint, with multiple operations in low-cost manufacturing regions, offers flexibility and reduces risk compared to concentrating production in a single country.
Three major industries in Mexico
Companies of all types can gain the benefits of manufacturing in Mexico as noted above. However, players in three major industries in Mexico may find they benefit from already established efficiencies of scale. Three of the biggest manufacturing industries in Mexico include:
- Automotive manufacturing: With nearly a century of experience in automotive manufacturing, Mexico is the fourth largest auto exporter in the world, and first in auto parts exports to the United States. Ten automotive OEMs have established a presence, and a supply network, in Mexico.
- Aerospace manufacturing: Making up nearly half of foreign direct investment in Mexico, this industry has demonstrated 15 percent growth over the last decade. Today more than 350 aerospace companies throughout the value chain manufacture components in Mexico.
- Electronics manufacturing: Mexico has become a leading producer of televisions, screens, and countless other consumer and commercial electronics. It’s one of the country’s oldest manufacturing sectors yet it continues to attract new investment. Electronics leaders like LG, Sony, Samsung, and Vizio operate here as part of the well-established supply network.
The major manufacturing areas in Mexico
Each area in Mexico has its own cost to benefits ratio, so companies looking for the right area to manufacture in Mexico should have a clear sense of their operational priorities. The major manufacturing areas in Mexico include the following:
- The U.S.-Mexico border region includes Tijuana, one of Mexico’s top export manufacturing locations. Its proximity to the U.S. border, and more recently the growing life sciences sector in San Diego, has made this a popular location for manufacturing. The cost of this popularity, however, is more competitive wages and real estate.
- Northern Mexico: Just beyond the border, companies looking to balance cost with U.S. proximity locate in Monterrey, Mexico’s third-largest city and a commercial and industrial hub, or benefit from a more cost-effective location in the automotive capital of nearby Saltillo. Sonora is also home to a network of diverse manufacturing cities—Hermosillo, Guaymas and Empalme—where manufacturers can find a stable and competitively priced labor force and a range of transportation options.
- The Bajío region of Central Mexico includes parts of the states of Aguascalientes, Jalisco, Guanajuato, and Queretaro, all of which have seen tremendous growth in recent years as companies look to manufacture in Mexico regions with more competitive costs. Guanajuato, for example, has become the fastest-growing manufacturing state in Mexico, while Queretaro has fast become a hub for aerospace manufacturing.
How to find manufacturing partners in Mexico
The extensive supplier network is a tremendous incentive for companies that decide to manufacture in Mexico, but supplier partners aren’t your only resource for manufacturing success. Many U.S. manufacturing companies decide to manufacture in Mexico under the shelter service model. By operating under the umbrella of a shelter service provider that serves as the legal entity of record in Mexico, U.S. companies gain tremendous efficiency and can speed their launch. These shelter companies can provide a range of services, from real estate leasing or selection to startup support and long-term administrative assistance.
With the right partner in Mexico, U.S. companies can better position their company to reap the many advantages a diverse manufacturing footprint can offer.
To tailor your approach to manufacturing in Mexico, contact Tetakawi.