Photo credit: Work in Progress by daveynin
Mexico is a country that’s suffered from a rather bad reputation lately; all the media seems to be focused on is the nation’s problems with drug trafficking gangs and politics. Mexico does have its issues; however, what might come as a surprise to many investors that aren’t familiar with the electronics industry is that this Spanish-speaking North American country is a well-known digital manufacturing powerhouse. Most major electronics companies have already set up shop in Baja California in the country’s north, and many businesses that relocated to China in the 1990’s and 2000’s are returning to the shores of the Americas thanks to all that Mexico has to offer.
What companies are in Mexico?
To get an idea of the extent of Mexico’s mammoth role in electronics manufacture, one only has to see the names of some of the companies in operation there. In Baja California alone, Sanyo, Samsung, Sony, Hitachi, Bose Corporation, Daewoo Orion, Kyocera, LG Electronics, Panasonic, Philips Lighting, and Pioneer along with 188 other companies employ over 92,000 people. Being located in Mexico has proven to be so beneficial that the companies that supply the above mentioned corporations have also relocated to Baja California.
Why Mexico over China?
Until fairly recently, relocating to China made good economic sense for electronics manufacturers because wages in China were so low that the additional cost of transportation over long distances could be justified. However, in the past few years, wages have been increasing to such an extent that they are now equal to the wages a similar worker would earn in Mexico. The higher wage in China combined with the now near astronomical cost of transportation makes a move to Mexico the smarter option.
However, there are other reasons why businesses are choosing Mexico over China and other Asian countries; it’s not just about workers’ wages and transportation costs. First of all, Mexico has intellectual property laws that work – a company’s proprietary design isn’t going to get stolen and copied. Second, Mexico produces an astonishing amount of highly skilled workers thanks to its numerous universities, technical institutes, and training facilities. Engineering graduates, production accountants, and all other workers that have very specific skills abound in Mexico – the myth that the country only produces unskilled labor is totally destroyed. Mexico’s workforce is highly educated, specialized, and famously hard-working.
Other reasons why Mexico’s the powerhouse of digital manufacturing
Along with reduced transportation costs, a highly educated, experienced workforce and relatively low wages, there are other reasons why Mexico is the darling of the electronics-manufacturing world. One of these reasons is the fact that Mexico is a signatory to NAFTA, the North America Free Trade Agreement. This means that businesses that would otherwise be subject to heavy duties and taxes simply will not have to pay them if they manufacture in Mexico, dramatically improving a business’s bottom line. Mexico also has dozens of free trade agreements with other countries and regions; Mexico’s free trade agreements far outnumber those that rival China has.
Another reason is that Mexico is the gateway for all the Americas; the U.S. is right next-door, and access to Central and South America is easy and convenient. Again, the savings on transportation will be significant.
Finally, another reason why Mexico is a huge player in the digital manufacturing industry is that it can offer “just in time” manufacturing. Massive orders do not need to be placed months in advance, and companies don’t need to wait for weeks for parts or products to be manufactured and shipped. Storage facilities are practically eliminated as products are made quickly and shipped in a very short period of time. From Baja California, the American ports of Los Angeles and Long Beach are a hop, skip, and a jump away, while the Mexican port of Ensenada can also offer international shipping services.