Why Do Companies Manufacture in Mexico?

September 17, 2020

Manufacturers have often turned to Mexico first and foremost for its low-cost labor advantages. However, in recent years, many companies have had an additional motivation for expanding or moving into production in Mexico: stability for meeting regional demand.  

Regional manufacturing has become an increasingly attractive option for companies seeking to strategically and cost-effectively reach global customers. With disruptions ranging from the global COVID-19 pandemic to tariffs to renegotiation around free trade agreements, manufacturers have been closely examining the need for a diversified global footprint

Certainly, this was a factor for several of the major companies that have recently announced big plans for manufacturing in Mexico. According to FreightWaves, the country has recently seen more than $100 million in foreign investment from manufacturers. For many of these companies, the decision to expand operations in Mexico points factored in the country’s manufacturing stability after a tumultuous few years for global trade. 

Must Read: Everything you need to know about manufacturing in Mexico

Mexico provides flexibility to meet demand

Overview of the automotive manufacturing industry in Mexico-tetakawi

When executives at Motorcar Parts of America Inc. (MPA) decided to expand the company’s line of automotive component offerings to include brake calipers, a move to solidify its position as a full-line brake supplier, they knew they would need more room to do so. In examining their options, Selwyn Joffe, chairman, president and CEO of MPA, noted in a call on the company’s quarterly earnings that the company factored in the “geopolitical situation today” in making this decision. Like many companies watching the U.S. tariffs on China, MPA shifted its focus toward Mexico.

The company’s existing Tijuana manufacturing and distribution facility is already among the most sophisticated starter and alternator remanufacturing facilities in the world. It stretches across 310,000 square feet and employs more than 1,000 people. Now, work is nearing completion on an expansion that will bring the manufacturing footprint to approximately 370,000 square feet. The build-out will accommodate caliper production, as well as certain other product lines being relocated to Mexico to reduce overall production costs. 

“The competitive landscape continues to change, and customers are placing even more importance on reliable suppliers to meet anticipated demand,” commented Joffe in discussing the $11 million plant expansion.

Stability attracts automotive component supplier

Indiana-based Stant Corp. had to make a decision on where to open its newest manufacturing facility. The company has eight production plants worldwide, from which it provides automotive components such as fuel control valves, temperature pressure system caps, and piping for fuel storage systems to suppliers, including Ford, Volvo, GM, and Chrysler. Executives’ view of the stability in Guanajuato, Mexico, offered confidence that opening a second factory in the state was a sound decision. 

The forthcoming expansion is expected to generate 500 direct jobs over the next five years, adding considerably to Stant’s existing 300-employee workforce in Mexico. According to Diego Sinhue Rodríguez Vallejo, Governor of Guanajuato, this latest investment in Guanajuato puts the state sixth in the nation in terms of job growth. 

“In Guanajuato there is certainty of your investment, labor and social peace, [and] there is a qualified workforce,” commented Rodríguez Vallejo during a ceremony marking the start of this expansion. “That confidence is consolidated with this expansion of its plant.”

With this coming expansion, the facility is expected to attract more injection molds suppliers, further strengthening the local supply chain. 

In fact, Gov. Rodríguez Vallejo notes that decisions like this one drive improvements across the local economy. “The presence and example of Stant Corporation drive us to continue our commitment to innovation, research and technological development,” he says. “[This] integrates more local companies into value chains, especially micro, small and medium-sized ones.”

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Growing manufacturer benefits from regional presence

map of manufacturing regions in Mexico

The Emma Sleep Co., a Germany-based mattress manufacturer, had begun selling products into the North American market in 2019. Soon it became clear, however, that a North American manufacturing location could improve service and lower costs. Like more than 2,000 other German investors, the company opted to expand into Mexico in order to reduce delivery times to customers in Mexico, the United States and Canada, while keeping production costs low. 

The company has invested about $2 million in an export facility in Zapopan, Jalisco. The company will produce its mattresses through Mexico-based Ureblock SA, a commitment that is expected to generate 100 additional jobs in production, logistics and transportation.

“With the start of production in Mexico, the supply chain will improve allowing shorter delivery times, both in Mexico and the countries destined for export,” commented Manuel Mueller, founder and CEO of Emma Sleep, in a news release. “For this reason, the company estimates to achieve even faster growth in its sales and aims to be the leader in the online mattress sector within two years.”

Many companies have come to a similar conclusion in recent years. While manufacturers might once have seen benefits from producing goods in one low-cost manufacturing location and then shipping worldwide, today they’re more likely to save by manufacturing regionally. Savings from reduced shipping costs, coupled with quality improvements through easier oversight of regional facilities, only add to the clear benefits of a diversified supplier network. 

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Invest in Mexico with confidence

With the U.S.-Mexico-Canada Agreement (USMCA) now soundly in place, manufacturers are gaining confidence that the advantages that have made Mexico a prime manufacturing location for decades will not waver. 

Of course, there are many additional reasons why companies manufacture in Mexico. To learn how to reap these benefits, contact Tetakawi to tailor a strategy that fits your organization’s needs. 

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