Photo credit: Leaving on a jet plane by McPig
For years, Mexico has been quietly but steadily building itself into a manufacturing powerhouse, and automobile manufacturers have known for decades that Mexico’s highly skilled and ethical workforce are among the world’s best. It’s a well known fact that the automobile industry in Mexico is expanding at an astounding rate to meet demand and that there are plenty of opportunities in Mexico for foreign auto makers and foreign auto parts manufacturers.
However, one industry that is also booming and might not be receiving as much press as the automotive sector is the aerospace sector. And just like in the automotive industry, there are opportunities for many foreign companies.
But first of all, it’s necessary to have a look at why a foreign company would want to set up shop in Mexico. Sometimes, some companies will set up shop abroad to take advantage of lower wages; however, this can prove to be disastrous if the workforce is not highly skilled or educated. Mexico has a highly educated, highly skilled, and hard-working pool of human resources, making them the ideal employees for high tech and specialised manufacturing. While their wages may not be as low as the wages employees in Asian countries may receive, they are still much lower than their U.S. and European counterparts. Therefore, foreign companies get the best of both worlds: great value for money.
Foreign companies operating in Mexico also get to take advantage of the free trade agreements that Mexico has with dozens of other countries. This means access to virtually all markets in the Americas, the European Union, and some Asia-Pacific countries.
The third reason why companies, especially aerospace companies, should consider Mexico is the fact that companies can be 100% foreign owned, which is not the case in other countries trying to attract investment. This means that the company has full control over how their business is conducted.
So what are the opportunities that exist in Mexico’s aerospace sector? Well, the first big opportunity is the ability to enter the United States market without having to pay the wages that U.S. engineers and employees will expect in factories. In other words, it’s a cost effective way to be a part of the American market and meet the needs of American clientele. Furthermore, Mexico’s effective transport links make it easy to import raw materials if needed and export the finish product across the border.
The second opportunity for foreign companies in the aerospace sector is to set up factories for the Mexican market: instead of paying costly shipping fees and high wages, some helicopter manufacturers from Europe have decided to make the helicopters for their Mexico clients right there in Mexico.
At present, there are over 250 companies in the aerospace sector operating in Mexico: Manufacturing and maintenance firms are expanding and the numbers of companies coming in is expected to grow as Mexico’s government is actively promoting the aerospace industry. Making things especially attractive for foreign firms is the fact that the country provides a “soft landing” for businesses in high-tech manufacturing. Red tape is cut to such an extent that manufacturing can start weeks or months after a deal has been signed; in other countries, this process can take years, affecting a company’s bottom line severely.
Finally, another good reason why an aerospace company should do business in Mexico is IP protection. In an industry where design is so imperative, a rival company stealing a proprietary design can be devastating. Mexico’s laws are strict where intellectual property is concerned.
Mexico’s aerospace industry shows absolutely no signs of slowing down and only growth is predicted; companies that take advantage of what the Spanish-speaking country have to offer will find that the opportunities are almost limitless.
According to Audi CEO Rupert Stadler, Audi is on the path to strengthening already strong sales in the North American market with the laying of the foundation stone of automaker’s new plant in San José Chiapa, Mexico. “[This is] an important future element of the global Audi production network,” he stated recently in an Audi press release.
The new $1.3 billion Audi AG plant, set to become operational in 2016, will create 3,800 new jobs in the state of Puebla, where the plant will be located. This will be the first factory in the Americas for Audi, and the vehicles manufactured in the plant will be the automaker’s popular Q5 SUV.
While the plant at first was intended to manufacture 150,000 units, executives at Audi have stated publicly that the plant will be large enough for 300,000 units, and there could very well be production of a Q6 SUV along with the Q5 models.
The goal of Audi AG is to make North America one of their top three markets. Said Stadler at another press conference: “In 2020 every seventh Audi from our worldwide production will go” to North America, Stadler said in a speech at the groundbreaking ceremony in Mexico over the weekend. “Then we have reached our goal and strengthened America as a third pillar of our sales in addition to Asia and Europe.”
He further remarked at the laying of the plant foundation ceremony in Puebla: “With the production of one of our most successful models here in Mexico, we will give significant impetus to our global growth and supply the extremely popular Audi Q5 from here to the world market. By setting up a new car plant in North America, we are establishing a presence on another continent that is very important to us. In this way, we are strengthening our international competitiveness and consistently pursuing the Audi growth strategy.”
The plant will contain a paint shop, body shop, assembly line, and press shop. The 400-hectare facility will be the Audi’s most modern and technologically advanced, and Mexico presented many benefits to the automobile maker. The Mexican workforce is highly educated and famed for their strong work ethic, and the country’s well-developed infrastructure along with its numerous international free-trade agreements made it the ideal place for Audi to set up shop.
Furthermore, Mexico offers the best tax and business environment for automakers. “With Mexico, Audi has made the best choice to help it develop and secure its growth,” emphasised Mexico’s Economics Minister Ildefonso Guajardo Villarreal in the same ceremony celebrating the start of the plant’s construction.
Rafael Moreno Valle, Puebla’s governor, further stated: “Our country and the new Audi location in San José Chiapa in Puebla offer the best conditions for the successful development of the entire American market. We are proud that with Audi México, the first international premium manufacturer in the automotive industry is at home in our federal state.”
On a separate occasion, Stadler mentioned that no jobs at the Ingolstadt factory in Germany would be lost when production of the Q5 shifts to Mexico; the additional demand for production cannot be met at the existing German plants.
Photo credit: Mexico: Dinero, Peso, Moneda by Speaking Latino
“U.S. and Mexican companies do not simply sell products to one another, they build products together”, says Ambassador E. Anthony Wayne
The U.S. Ambassador to Mexico, who spoke to the American Chamber of Commerce earlier this month, emphasised how the two countries are linked together through bonds of friendship and economy that run deeply.
“President Obama said that our two countries ‘are not simply neighbors bound by geography and history. We are, by choice, friends and partners.’ At the heart of this special relationship are very deep and strong economic ties. Since 1993, prior to NAFTA’s implementation, both Mexico’s and the U.S. GDP have grown 56 percent. Bilateral trade has increased fivefold. Mexico exports more to the U.S. than all of the BRIC countries combined”, said Wayne.
To expand on his point of the countries being tied by very strong economic bonds, he explained that the United States’ second largest export market is the neighboring Spanish-speaking North American country. Mexico’s largest trading partner is the United States. Furthermore, for 22 individual states, Mexico is the largest or second largest export market.
The ambassador also spoke of how the border between the two countries is one of the world’s busiest international boundaries. Over one million people cross the border every day, and per day the amount of trade that occurs over the border averages more than $1.25 billion. Growth was a solid 7 percent in 2012 despite the ongoing financial crisis in the United States, with bilateral trade totaling almost $494 billion in the same year. Wayne emphasized that this number does not include services; in fact, if services were included in the calculation, bilateral trade for 2012 would be more than half a trillion dollars.
The Ambassador also highlighted how when it comes to competitiveness on the international market, Mexico and the United States do not simply trade with each other, they build and develop products with each other in a way that can be seen as more of a partnership.
“This means the competitiveness of our two countries is closely linked, and improvements in productivity in one nation make a co-manufactured product cheaper and more competitive on the global market. That is to say, growth in Mexico or the United States boosts exports from both countries: when it comes to manufacturing, we are in it together,” he said.
Mexico currently enjoys free trade agreements with 44 countries, which in fact makes it the country with the highest amount of free trade agreements in the world. Because the country has recently entered the Trans-Pacific Partnership negotiations, both the United States and Mexico will be able to build on their NAFTA foundation. In other words, the U.S. and Mexico will be able to strengthen their economies within the NAFTA countries and will be able to strengthen their economies by increasing trade with Asia-Pacific regions. Access to these Asia markets could mean 198 million new customers and up to a trillion dollars annually in resulting trade.
Mexico provides “just-in-time” manufacturing which is an effective cost-saving tool for American companies, transportation is nimble, and Mexico produces more engineers per year than Canada or even Germany. This talent-pool along with Mexico’s other advantages make the country a natural choice for international manufacturing firms.
Mexico’s growth is good for the U.S. economy, and according to Wayne, more awareness needs to exist about the two countries’ shared economic success.
Photo credit: Pirate Ship, Puerto Vallarta, Mexico by SMcGarnigle
Mexico is a country that’s got its problems, and there is no way to sugar-coat them. Yes, there are drug cartels, crime syndicates, corruption in the government and a weak rule of law in some places. However, Mexico is poised to become one of the more dominant economic powers this century, and more and more investors, both domestic and foreign, are realising that Mexico’s solid economic growth of the past few years will only continue to expand.
When it comes to total economic clout, Mexico won’t be able to challenge India or China simply due to numbers; Mexico’s 112 million population is a tiny fraction of the billion-plus populations of the two Asian countries. However, what Mexico offers investors is considered by many economics experts to be vastly superior. What has happened is that metaphorically speaking, Mexico is open for business.
Mexico, in an effort not to be defined and overshadowed by it negatives, has signed 44 free trade agreements, more than any other country on the globe. It has twice as many free trade agreements as China, and four times more agreements than South American rival Brazil. Making things even more interesting for investors is the fact that Mexican universities and technological institutes are producing vast numbers of highly skilled workers and engineers who are not only capable of working, they’re capable of innovation and finding ways to make things run in an incredibly efficient manner.
There is also the matter of the recent natural gas finds in Mexico, which can significantly reduce transportation costs. This, along with the fact that wages and product transit costs are on the rise in China, make Mexico one of the hottest countries for investment. Manufacturing industries that went to Asia when it was cheaper are finding their way back to the Spanish-speaking North American country, and due to the amount of solidly educated, innovative skilled workers, high-tech industries are also hoping to establish plants and headquarters there. Automotive and aerospace industries are flourishing at present and are expecting solid, continuous growth.
However, there is one recent development that may encourage massive amounts of investment in the country; the current government of President Enrique Peña Nieto, is working with all three of Mexico’s big political parties to fight the massive energy, telecom and teacher monopolies that some say have held back the country’s economic growth. If these monopolies get broken, the possibilities for investors in the field of telecommunications and energy may become too numerous to count.
To summarise, in the 1990’s and 2000’s, when many of the foreign companies operating in Mexico up and let for the then-cheaper Asia, Mexico’s citizens did not waste their time; producing a skilled workforce for industries other than textiles that was innovative and efficient became key.
From aerospace industries and web-based start-ups to cloud computing and electrical engineering and a commitment to free trade, Mexico has got it all for investors and the only way to go for the foreseeable future is up.
Photo credit: Fiat Made in Brazil ~~~~ DSC04692a_hdr-ort by SantaRosa OLD SKOOL
It was 1921 when Buick established the first car production plant in Mexico. Over 90 years later, Mexico became the fifth export country for vehicles in the world, only behind the US. Now, Mexican automotive industry is playing a key role for OEMs, tiers and aftermarkets.
It appeared that nothing would stop Mexico from reaching the fourth place of exporters, but Mexico became victim of its own success.
During 2011, Brazil had a deficit of $1,170 Millions USD with Mexico and requested to renegotiate the terms of Complementary Economic Agreement No. 55 (ACE55), in particular the Appendix II for the Automotive Industry.
After some negotiations, on March 19, 2012, Mexico and Brazil executed the fourth protocol amending ACE55, and setting up the rules for allocating import/export quotas, as well as certain tariff preferences for HTS that will rule until March 18, 2015. Thereafter, free trade will return to full effect.
In Mexico, quotas were allocated to exporters complying with the following requirements: (i) minimum manufacturing volume of 40k new vehicles, (ii) registration of light vehicle manufacturer according to the Automotive Decree, (iii) investments of capacity for 40k new vehicles, (iv) exports to Brazil during last 2 years. The top quotas were allocated to Nissan ($90M USD) and Chrysler ($83M USD).
Argentina had a $1,000 Million USD deficit with Mexico during 2011, and threatened to negotiate an amendment to ACE55 last March 21. After rejection from Mexico, Argentina imposed restrictions to imports from all countries. In reaction, a group of 40 countries (Mexico included) are now presenting a filing before the World Trade Organization to enforce free trade.
Regardless of the fact that Brazil and Argentina are not big destinations of Mexican exports, in relation to the total exports, the truth is that such restrictions affect the global planning for OEMs, and other companies living around them (Tiers and aftermarket).
All Plants announced by OEMs in Mexico will not be cancelled but adjusted. It is early to know what will be the effect on Brazilian or Argentina automotive capitals at this moment, but restrictions on imports will not protect national investments. After all, capitals are like water, they will find a way to elude artificial barriers.