Photo credit: Tesla Robot Dance by Steve Jurvetson
Many experts have watched the development and evolution of Mexico’s economy. Her GDP has been steadily rising for the last few years and many of her people are being lifted from poverty. It is estimated that in the next five years Mexico could produce an annual manufacturing output of US $60 billion.
There have been a number of reasons for this growth. Mexico has established over forty trade agreements with countries around the world. They have also maintained low production costs which according to 2012 figures have dropped below the average production costs of Chinese factories. These costs look set to drop further as Mexico is continuing to establish a well-supported infrastructure which promotes manufacturing and trade.
Many automotive manufacturers are taking advantage of the potential gains from Mexican production. US companies are forging strong relationships and can appreciate the significant changes which have taken place in the region.
Mexico also represents an extremely large potential market of over 100 million consumers. This is estimated to be almost a third of the market in the US, so provides significant potential. The growth in the Mexican economy is opening up this market as towns and cities are established around manufacturing and trade.
Great examples of this are the towns which are building up around airports and airfields. Carriers are moving thousands of tons of cargo annually from Mexico to all over the world. This cargo varies from textiles to consumer electronics, perishables to luxury goods. Automotive parts also factor into this figure quite significantly.
The trade agreements and other bureaucratic processes have facilitated easier trade between Mexico and other countries around the world. While paperwork is still an issue and security measures for import and export remain tight, it can be a fluid process. This has allowed a number of businesses to cut their production costs and improve shipping and handling fees.
The current limitations and delays in air freight are largely due to the sheer number of goods coming in and out of smaller airports. The international airport in Mexico City, Benito Juarez, is limited by its current size and is restricted to grow further. The city has grown and developed around the airport which has left it almost at the center of one of the biggest cities of the world. This severely restricts the possibility for additional runways, terminals or even warehouse space.
Many US auto part suppliers have already become accustomed to the idiosyncrasies of Mexican customs paperwork and find the process straightforward without causing any noticeable delays. Officials have also made the effort to learn the importance of speedy import and export processes to assist trade. Even the limitation of reduced aircraft capacity can be managed by trucking freight over the border and flying it out of US airports.
During several years, Mexico has been adapting its legal framework to encourage manufacturing facilities for exporting, and implementing public policies for facilitating automotive plants. Currently, Automotive Decree and IMMEX Program rule the eligibility and benefits for automotive manufacturers. The most basic benefits are the import of raw material and machinery without paying import duties or sales tax, as long as the finished goods (parts or cars) are exported.
The general consensus is that Mexico is set to continue flourishing. Her manufacturing potential, infrastructure and trade agreements represent a renewed opportunity for all suppliers including auto part suppliers. Wise investors are taking full advantage and seeking out new traded relationships and investment agreements as early as possible.
A recent example of this trust in Mexican automotive industry is the Plant of Mitsubishi Electric. This Plant will be open in the central State of Queretaro with an investment of $70 M USD generating 500 jobs.
Other companies like BMW and Mercedes are considering setting up plants in Mexico, and companies like Toyota and Nissan are considering increasing their operations. While these operations are not yet confirmed, the truth is that Mexico has been attracting big automotive investments and some of these have big possibilities to happen in a spiral effect.
Do you believe Mexico will finally attract these investments?