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Mexico Remains the Most Important Gateway to the US Market

| Author/ Editor: David McQueen* / Alexander Stark

While some companies are watching global market changes with concern, there is more reason than ever to invest in manufacturing in Mexico.

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High-tech manufacturing has long since arrived in Mexico. Political circumstances have made the location even more attractive.
High-tech manufacturing has long since arrived in Mexico. Political circumstances have made the location even more attractive.
(Source: Tetakawi)

Mexico's leading industries have attracted many suppliers. However, there are gaps in the supply chain which offer the opportunity to enter a market without facing a lot of competition. While the uncertainty in the global economy is increasing, an investment in Mexico is comparatively safe. The revised Nafta Agreement (USMCA) may still await adoption by the US Congress, but many of the principles in the document are in line with the aims of Mexican President Andrés Manuel López Obrador to improve conditions for workers in his country. An analysis of the USMCA agreement by the US International Trade Commission (ITC) found that wage increases are more likely to be implemented in the long run, giving local manufacturers time to adapt. The ITC reports also predict that the expected increase in wages is likely to be offset by better availability of skilled labor and productivity gains with corresponding increases in turnover.

Mexico Benefits from the Trade War Between the USA and China

The trade war between the USA and China is another reason for investing in Mexico. Manufacturers who want to enter the US market without fearing the continuing danger of tariffs will find what they are looking for in Mexico.

The Mexican automotive industry is closely integrated into the North American supply chain of key industrial sectors. Under the new rules of the USMCA Free Trade Agreement, manufacturers are obliged to manufacture a certain share of a product in North America. As a result, many global automotive suppliers are relocating their activities to Mexico in order to meet these quotas.

The aerospace industry comprises some 300 manufacturing companies and accounts for almost half of the country's foreign direct investment. As the industry works on the development of advanced aircraft, major local aircraft manufacturers such as Bombardier, Airbus and Aernnova need adequate machinery to take their production to a new level.

Another dynamic industry is medical technology. In 2018, almost 650 companies exported medical technology worth over $9 billion. This rapidly developing market relies on a supply chain that is both highly adaptable and involves short distances.

The market for electronics production in Mexico also remains dynamic. The industry has grown in the wake of the other three industries and has meanwhile established itself successfully. As tariffs on China increase pressure on electronics manufacturers, many look at Mexico as an alternative.

Challenges in Mexico Can Be Overcome

Nevertheless, there are some challenges in setting up a production site in Mexico. Like in many countries, bureaucracy is complex and often leaves little room for errors. However, this challenge can be mastered with advance planning or a local partner. Other problems, in particular crime and corruption, can largely be avoided through awareness-raising and vigilance. Most of the more than 40 million visitors who come to Mexico every year never come into contact with petty crime or corruption.

Mexico has long been attractive to foreign investors due to its proximity to the US market and low barriers to entry. These factors will not change, but the infrastructure will continue to improve. With a foreign trade-friendly environment and more free trade agreements than any other country, Mexico offers conditions under which the manufacturing industry continues to grow.

This article was first published by MM MaschinenMarkt.

Original by Stéphane Itasse / Translation by Alexander Stark

* * David McQueen is Director Consulting Services at Tetakawi in AZ 85710 Tucson (USA)

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