Opportunities for Chinese Companies in Mexico

Opportunities for Chinese Companies in Mexico

Photo credit: chinese_new_year003 by Mark Eslick

Mexico’s economy is growing; in 2012 economic growth was 3.9 percent, and it is expected to continue growing.  Foreign companies are seeing that Mexico is a great place to conduct business for several reasons, and although there is no free trade agreement between Mexico and China as of yet, there are plenty of opportunities for Chinese companies in Mexico.

It’s well known that the Japanese vehicle manufacturing industry is firmly established in Mexico; German automakers Volkswagen have been operating in the country as well for decades and almost all car makers in Mexico are planning on expanding their production facilities or building new plants in the very near future.  Car parts manufacturers are also expanding, with many foreign companies looking to expand their presence in Latin America.  Therefore, there is a large, highly specialized work force with years of experience in car production; Chinese car companies who are wishing to access the North and South American markets should seriously consider factories in Mexico.

Related to the vehicle manufacturing industry is the aerospace industry; Mexico’s highly skilled work force is what has attracted businesses like Bombardier to set up shop in the Spanish-speaking North American country.

What’s also interesting for Chinese companies is that in Mexico, while the wages might not be as low as they are in China, chances are that in the near future wages will go up all over Asia.  This, teamed with the high cost of transport, makes Mexico the smarter option when it comes to manufacturing.

Hi-tech companies may also want to invest in Mexico; many people in the workforce are highly educated, have engineering degrees and many are completely fluent in English.  During the years that the manufacturing jobs went to Asia, Mexico did suffer somewhat economically, but instead of relying on labor-intensive, low-paying industries like textiles, young Mexicans focused on technology and working efficiently.  The result now is that innovation in information technology and cloud-based computing is coming from Mexico.  Chinese companies would be able to access some of the finest minds in high-tech industries.

As mentioned above, while there isn’t a free trade agreement between the two countries, Chinese companies manufacturing in Mexico would be able to take advantage of many of Mexico’s trade agreements with other countries.  In fact, Mexico has free trade agreements with 44 countries, including the United States, Canada, and the European Union.

Finally, as also mentioned above, China would be able to access all markets in the Americas if production facilities were established in Mexico.  Because of the high cost of fuel, transporting items by sea such as vehicles will be incredibly costly, but due to Mexico’s central location, the cost of transport from Asia is completely eliminated, which is good news for a company’s bottom line.

There are many opportunities for Chinese companies in Mexico.  Along with the automotive, aerospace and IT industries, it’s very possible that the government will be opening up the telecommunication and energy sectors, breaking the decades-long monopolies that have, some say, held back Mexico’s economic growth.  China is known to be experts in the field of telecoms and could either establish cell phone networks or consult new national companies.   Furthermore, China could be an ideal investor to update infrastructure in the energy industry.

High-Tech Manufacturing Driving Mexico Economy

High-Tech Manufacturing Driving Mexico Economy

Photo credit: Overheating laptop by nick@

Mexico’s economy, up until very recently, was based on labor-intensive, low-paying industries such as textiles.  However, in the past few years, the industry that’s been fuelling economic growth in this Spanish-speaking North American country is that of high-tech automotive manufacturing; and although the textile and other manufacturing jobs have been going to China and India, Mexico’s economy is expected to continue growing.

A big part of this growth and interest from investors isn’t simply about lower wages; it’s about highly skilled labor and experience which may not be present in other countries or regions in the world.  For example, German automaker Volkswagen opened their first plant in Mexico in 1967; and anyone who’s visited the country knows that the Bug or “el vocho” was ubiquitous in the country for decades.

The present-day Volkswagen plant in the historical city of Puebla, about a two-hour drive southeast of Mexico City, is now the largest auto manufacturing plant in North America.  Featuring state-of-the art equipment, computer and robot technology, it employs over 18,000 people and produces 2,500 vehicles a day.   The country exports most of the cars, and is at the present time the eighth largest automobile producer on the planet.   It is also the fourth largest automobile exporter, and growth is not expected to slow down any time soon.

But what are the other reasons why investors in high-tech industries should consider Mexico?   According to Thomas Karig, one of Volkswagen Mexico’s vice presidents, “Mexico is becoming quite an automotive powerhouse”.   Karig emphatically states that companies and car companies in particular should set up shop in Mexico; Mexico’s location makes it an almost perfect location for export to North, Central, and South America.  Further sweetening things for foreign investors is the fact that the country has an open trade policy and a workforce that is highly skilled and experienced.

In September of 2012, Volkswagen subsidiary Audi announced it would be establishing a new plant close to the one in Puebla.  President of the Mexican Automotive Industry Association Eduardo Solís stated:  “There is an important element here where Mexico is, currently in the automotive industry, associated with good quality, with good products.  We have been scaling up in the value chain.”

It’s not only the automotive industry that is growing; because automotive industry employees in the past were able to afford educational opportunities for their children, industries that require a highly educated workforce can operate in Mexico.  Other countries, although wages may be lower, simply do not have the education the Mexican workforce has.   Mexico is the place to invest in industries such as aerospace, technology, and autos; and these industries are, not surprisingly, growing quickly.

Other car manufacturers in Mexico include Lexus and Nissan; interestingly, New York City’s entire new fleet of taxis is currently being manufactured at the Cuernavaca Nissan plant.

To summarise why Mexico is a place high-tech industries should consider, perhaps Cesar Lopez Ramos of California-based Plantronics Inc. says it best:  Mexico is attractive because it has “human capital that is more developed and capable of not only making products but innovating.”

Growing Opportunities in Mexico for Overseas Companies

Growing Opportunities in Mexico for Overseas Companies

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.

Mexico’s 3.9 percent Economic Growth in 2012 Expected to Continue

Mexico’s 3.9 percent Economic Growth in 2012 Expected to Continue

Photo credit: Bolsa Mexicana de Valores by mykewithwai

Mexico’s Instituto Nacional de Estadística y Geografía (INEGI), translated as the National Institute of Statistics and Geography, has recently stated to the public that the country’s economy, due to a rise in agricultural sector activity, grew by 3.9 percent in 2012.

The growth in the economy corresponded to projections made by the Mexican government a year ago, and was roughly the same as the growth the country experienced in 2011.  INEGI stated that part of the growth was fueled by agricultural activity, which grew 7.2 percent in 2012’s last quarter.  A higher production of corn, beans, sugarcane and wheat was responsible for the sector’s growth.

In a move to promote higher rates of growth and to attract investment in high-tech industries, the new Federal Government under President Enrique Peña Nieto is working to pass reforms in the energy and telecommunications sectors.   The objective is to increase the rates of formal employment in the country where unemployment and underemployment can be problematic.

However, there are industries other than agriculture, which are contributing significantly to Mexico’s strengthening economy.  The first industry is that of automotive manufacturing, with the Volkswagen plant in Puebla alone employing over 18,000 and producing approximately 2,500 vehicles per day mainly for export.  Other international auto companies with plants in Mexico include Nissan and Lexus.

The electronics industry is another area where strong growth has been seen and is expected to continue.  Mexico is the sixth largest producer of electronics after China, the United States, Japan, South Korea and Taiwan.  Electronics currently are responsible for 30% of the country’s exports.

Mexico’s highly skilled workforce is also contributing to the country’s economic growth; foreign companies who may have at first gone to China or India due to the low wages there are choosing to invest in Mexico as the workers are solidly educated and are also capable of innovation.   Automotive companies base their research and development headquarters in Mexico, and companies in the aerospace industry are also establishing manufacturing plants in order to access the highly skilled Mexican workforce.  According to the WTO and the OECD, the Mexican workforce is the hardest working in the world when it comes to hours worked per year and profitably in terms of man-hour.

Mexico’s economy is growing while others might not be doing as well for several different reasons.  Along with the skilled labor force, Mexico enjoys a good location for companies that want to export. Due to the high cost of fuel, a company that might have thought of locating to Asia may very well find that manufacturing in Mexico will produce big savings on transportation costs. From Mexico, both North and South American markets are easily accessed.

Finally, a significant factor in Mexico’s economic growth is the fact that it has 12 free trade agreements with 44 countries, including Japan, the United States and Canada (NAFTA), and the European Union among others.   Mexico has also shown interest in MERCOSUR and negotiations for free trade agreements are currently underway with South Korea, Peru, and Singapore.  The present government is also hoping to arrange a free trade agreement with Australia.

Opportunities for investors exist in Mexico; lower wages, a highly skilled workforce, and business-friendly free trade agreements will most likely ensure that the country’s economy will continue to expand.

Follow

Get every new post delivered to your Inbox

Join other followers:

Pin It on Pinterest

%d bloggers like this: