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Before making any large business move, it’s important to understand the pros and cons and exactly how the process might work. In this article, we will discuss Mexico’s IMMEX program, associated benefits and challenges for US manufacturers, and how to actually open a maquiladora operation in Mexico. 

What Is IMMEX?

IMMEX is the Spanish acronym for the Manufacturing, Maquila and Export Services Industries Program – the program that allows foreign companies to own maquiladora operations (sometimes referred to as maquilas). Created by the Mexican government, this program facilitates foreign trade by allowing foreign manufacturers to operate in Mexico under special duty considerations. 

Typically, manufacturers can import materials and equipment into Mexico duty free if the imports are for the purpose of manufacturing for export and are on a temporary basis. The finished goods are then exported outside the country duty free. Often, products cross the border multiple times in an interconnected value chain spanning the US and Mexico.

Why Open a Maquiladora

There are several key benefits for US manufacturers to consider opening a maquiladora in Mexico. Some of these include:

• Outsource operations in Mexico are close and accessible.
• Mexican labor is some of the most productive and affordable in the world.
• The maquiladora system allows US companies to partner with, rather than compete against, Mexican industry.
• Manufacturing in Mexico helps US businesses by creating demand for US materials.
• Mexico offers flexibility for location, kinds of products, etc.

There are numerous cost savings associated with the decision to open a maquiladora in Mexico, including:

• Reduced shipment costs
• Quick and easy startup
• Lower labor costs
• Tax savings

In view of the substantially low cost of operating in Mexico, it is tempting to assume the worst of Mexican infrastructure and capability. However, nothing could be further from the truth. Mexico boasts world-class ports, an extensive rail system, a highly dependable energy grid, and state-of-the-art telecommunications. 

And the country is investing even more into infrastructure to facilitate swift economic recovery after the recent global crisis. Currently public sector commitment is around $25 billion USD, while the private sector is pledging around $100 billion USD.

To Open a Maquiladora

When you make the decision to bank on the Mexico advantage, there are many documents you must file and procedures to complete. You are opening a factory in a foreign country, so the process can be quite challenging. To clear up some of the confusion, below is a checklist of what is needed in addition to your IMMEX application to register and open a maquiladora in Mexico.

1. Advanced electronic signature certificate (SAT)
2. Federal taxpayer registration
3. Active tax domicile in the federal taxpayer registry
4. Certified copy of your articles of incorporations along with any modifications
5. Copy of a document certifying possession of the property on which your maquiladora will operate (leases must show a minimum of one year) with photographs
6. Contract of maquila, showing the orders of purchase your operation will fulfill
7. Copy of your Power of Attorney or Unique Registry of Accredited Persons (RUPA)
8. Document detailing which IMMEX guidelines the maquila processes fall under
9. Document detailing production processes and plant capacity
10. Letter of conformity from the company or companies manufacturing or sub-manufacturing, declaring the specific liability on temporarily imported goods

There are additional requirements for some industries (like textiles) and alternate modalities. But these are universally required to open a maquiladora manufacturing plant for the standard holding company modality. 

With a Shelter Service

The shelter modality is the most convenient way to open a maquiladora. Essentially, you enter into a partnership with the shelter company. They become the owner of record registered in Mexico and handle all of the above paperwork. Additionally, they handle the various other administrative aspects, including, but not limited to:

• Import/export
• Freight & logistics
• HR/hiring/payroll
• Recruiting
• Labor relations
• Mexico accounting
• Vendor/supplier relations
• Environment, health and safety
• Mexico compliance
• Site selection

The process involves your company sharing product specifications and standards, and then allowing the shelter service to set up the maquiladora as your Mexican representative. This option allows US firms to focus on quality and production rather than international business hurdles and red tape.

Any company considering operating in Mexico should be familiar with cross border trucking operations, regulations, and best practices. International shipping involves a measure of risk, and the process is quite complex. 

To maintain trusted certifications and penalty-free cross border operations, it is best to have at least a basic understanding of how cross border trucking works between the US and Mexico, and what the major pitfalls are.

Costs and Challenges

With cross border trade between the two North American country valued at over $1 billion USD per day, it’s no surprise that trade with Mexico is a highly lucrative option to leverage. However, these daily interactions run smoothly only because manufacturers understand the process and take proactive steps to understand best practices. 

Manufacturers who import materials from the US and then truck products back into the States from Mexico face several key cost considerations and challenges if everything is not in order.  Some of the more notable include:

• Border delays for tariffs, compliance issues, incomplete or inaccurate papers, etc.
• Risk of loss and damage
• Longer transit times
• Higher costs
• Unplanned costs
• Compromised security
• Damaged customer trust and cancellations 

Paperwork

Not every shipment is the same, and there may be some variation. But in general, the following documents are needed if you want our shipment to cross the border in a smooth and timely manner:

1. Bill of Lading
   

The BOL (called a “Pedimento” in Mexico) is a contract between the freight carrier and shipper. It is filled out by your customs broker and includes all the necessary details regarding descriptions of goods, contact info for involved parties, etc.

2. Commercial Invoice

The CI contains key information that must not conflict with any details on the BOL, and assists the importer in passing customs. Some of the items it must contain include:

• Vendor’s name and contact info
• Consignee’s name and contact info
• Product descriptions
• Net/gross weight
• Payment currency and other terms
• Reference and license numbers

3. Carrier Information

Called the SCAC (Standard Alpha Carrier Code) in the US and CAAT (Carrier’s Harmonized Alphanumeric Code) in Mexico, this document identifies the freight carriers to the customs broker.

4. Certification of Origin

Under the USMCA, the CO does not follow a prescribed format, but must identify the tariff classification for all items shipped to verify preferential tariff treatment.

5. Document of Operations for Customs Clearance

The DODA is generated in the Mexican Tax Administration website by the customs broker on behalf of the carrier.

6. US Customs Declaration

Prior to arriving at the US border, northbound truckers are required to submit an e-Manifest declaring all cargo.

Customs Brokers

As you may have noticed, retaining qualified customs brokers is paramount and required by law in the cross border trucking process. 

Mexico requires a licensed customs broker domiciled in Mexico (MCB) to act as your agent and negotiate the crossings with perfect compliance. Likewise, the US requires a licensed customs broker domiciled in the United States (USCB) to act as your agent on the US side of the border.

The exporter of record employs a Mexican broker when importing from Mexico to clear the shipment, and the importer of record employs a US broker to clear the shipment. These two brokers coordinate together as your legal representatives.

Southbound vs. Northbound Trucking Process

Southbound cross border trucking shipments must first complete a three-step process before crossing the border. First, import documents must be submitted to Mexican customs. Second, payment must be submitted for all duties. Third, these payments must be verified by a Mexican bank.

Then, the truck is free to cross the border and immediately undergo primary inspection. Occasionally, a truck is selected at random for a secondary inspection. But typically, the less-involved first inspection is all that is required. 

After clearing inspections, customs officials verify all necessary paperwork. Then the truck may proceed past the 21-kilometer “border zone” if needed. 

The northbound border crossing is only slightly different. Prior to approaching the US border, export documents must be submitted and verified by the Mexican exporter. Commercial and cargo data must be submitted through ABI (the Automated Broker Interface). 

After this, the truck proceeds north of the border and is subject to primary inspection, which usually includes K-9 checks, and on occasion, a more detailed secondary inspection is called for. There are sometimes special programs that allow pre-approved shipments to pass through inspections at a much faster rate than typical. During the inspection phase, customs officials verify all compliance issues for both driver and shipment. 

Cross Border Trucking Best Practices

While the above information will help give a general idea of the process, these rules are subject to change. The recent global health crisis affected border crossings, so check with customs officials for the most current requirements. 

Likewise, there are many specific forms associated with each of these steps. So, working with qualified customs brokers is helpful. But this option does not relieve the importer or exporter from liability. Brokers are authorized to act on your behalf, and are usually quite knowledgeable in negotiating the crossing. However, there are alternatives.

Probably the safest and most convenient way to handle cross border trucking is through a shelter company.  Not only will a shelter service walk you through the steps of establishing and running a Mexican import/export manufacturing operation, they also handle all import/export aspects of your business. This includes every step of cross border trucking, for raw materials, equipment, and finished goods.  

Manufacturers around the world, but especially in the US, are facing severe labor shortages. While the US has implemented aggressive economic recovery programs, the shortage continues to grow. 

Now, data suggests this trend may worsen, leading to an even sharper disparity between supply and demand. This, in turn, leaves unprepared manufacturers critically vulnerable to the challenges of the years ahead.

With enhanced government unemployment benefits still in place in many parts of the country, a lack of critical training programs, and rising consumer demand, producers must take steps to ensure they can remain competitive.

Where Are All the Workers?

Both specialized roles and higher paying entry level positions are going unfilled. There is a critical gap in job openings and new hires. This is true in manufacturing and across other industries, as well. Deloitte recently released a study with rather disturbing numbers.

During 2020, the manufacturing industry netted a loss of well over half a million jobs. Yet, counter-intuitively, the industry currently maintains approximately half a million unfilled job openings. They report that in this period of historically high unemployment, we are simultaneously facing an unprecedented level of open positions. And this isn’t just a short-term problem.

By 2030, the US is expected to have 2.3 million unfilled manufacturing jobs. This labor shortage is predicted to cost the United States approximately $1 trillion, making a significant impact on GDP and productivity. 

According to a recent survey of US manufacturing executives, finding qualified labor today is 36% more difficult than in 2018. It remains one of the top problems facing the US manufacturing industry. These executives are now wondering if they will be able to keep pace with rising demand for their products, or if a lack of skilled laborers will cripple their ability to produce. 

Where are these skilled workers? How can we have such high unemployment numbers, yet face such a critical shortage in workers? What is driving this disparity?

Potential Causes

First, it must be noted that this is not a new problem. In 2018, Deloitte was writing about the same problem. Manufacturers were facing shortages of skilled workers even then. And they pointed to the problem of education – or lack thereof. 

Filling positions for CNC machinists, welders, maintenance technicians, and other skilled roles, requires training. Yet, these moderately skilled positions don’t typically pay enough to afford these laborers to relocate. So, it falls upon the manufacturer to train the local workforce. 

But this presents another challenge: training potential workers for months on end with no pay. Small to medium companies simply cannot afford this long-term investment. And many large manufacturers in the US don’t consider it worthwhile, due to the lengthy process of certification, licensing, hands-on training, etc. 

There is a misconception associated with this approach that the US has the workforce merely waiting to be trained. But this isn’t necessarily the case. In fact, part of the problem may be attributed to the retiring of the Boomer generation. While this generation was accustomed to shift work, producing things to find fulfillment, newer generations are keener on work-life balance and less tangible sources of fulfillment. 

And newer generations just aren’t as numerous. The working age US populace is no longer growing. In fact, recently, this demographic has begun to shrink. We’re not making enough humans to replace the retiring workers – even if we could train them. 

This trend was further exacerbated by pandemic politics, paying nearly on par with market wages for US workers to stay home. This has been called an historic blunder, and some fear it has permanently altered the American work ethic, leading to a shifting identity. Many working age adults in the US no longer identify with their work, but instead identify more with their values or social causes. And this problem may be permanent. 

Overcoming This Challenge

As unpleasant as the prospect may be of ever-increasing demand and an ever-dwindling supply of labor, there are alternatives. US manufactures are facing the labor shortage with resilience and innovation to rise to the challenge. Many of them are looking to nearshoring options to meet their demand for manufacturing labor.

Because Mexico follows the German model of training workers to order through academia-industry partnerships, the Mexican labor pool is highly skilled, even for machine intelligence and more technical manufacturing. The country graduates thousands of specialized engineers every year.

In addition to low-cost, skilled manufacturing labor, Mexico affords US manufacturers a unique advantage. The country’s economy is built on manufacturing. US producers who partner with maquilas south of the border leverage state-of-the-art facilities and infrastructure for a fraction of the cost to manufacture for export duty free to the US. 

As fewer and fewer Americans seek out manufacturing jobs, as training workers for the highly specialized roles modern manufacturing demands becomes more costly and impractical, and as governmental policies subsidize unemployment, the labor shortage will worsen for manufacturers. We see this as a strong trend over the next decade. But leveraging the strong, technical workforce in Mexico is proving to be a strong alternative. 

For nearly 50 years, US manufacturers have offshored production to China and other Asian countries. The primary reason: low wages. But now, the cost of manufacturing in China is spiking. It has been for years. 

US businesses who supply the US consumer market must keep costs low to remain competitive. However, for several reasons, China’s costs are looking less and less attractive. And companies who keep their manufacturing operations there will lose their competitive edge.

Chinese Prices Are Rising

Currently, prices for Chinese goods are rising rapidly. In fact, producer price inflation is at its highest point in 13 years, thanks to various cost factors that have changed.

China’s economy was already overheating before the global crisis of 2020. And according to government numbers, the nation’s consumer price index has begun rising in turn – 9% over the past year alone. This represents the fastest increase since 2008. 

And yet, even at these numbers, data suggests producers are not passing all of their extra costs on to their consumers. Chinese manufacturers are under several critical cost burdens that they have largely been absorbing until recently. But cracks are beginning to show, as costs of consumer goods made in China are rising. The cost of manufacturing in China has been rising for many years, but only now have we started seeing these rising costs transfer to consumers.

Factors Increasing the Cost of Manufacturing in China

China has been considered the world’s factory for decades. And money was at the bottom of this. It was simply much cheaper to produce there than anywhere else. How then can so many US producers be reshoring back to the US or Mexico? What is causing this shift?

1. Rising Materials Costs

Raw materials are sorely needed to fund China’s economic recovery, but they’re scarcer than ever. 

As such, the price of rebar is up 40% in China. Iron ore for steel is up 25% this year. And several commodities are reaching record highs, including thermal coal, glass, plasterboard, plastic resins, and others. 

2. Unreliable Labor Costs

Underpinning the strategy of most US companies producing in Chinese factories has been the low cost of Chinese labor. But China’s wages haven’t been low for years. Over the past decade, wages have risen at unpredictable and often rapid rates. Currently, the average hourly manufacturing wage is approximately $5.5 USD compared to Mexico’s $4.5. 

3. Rising Transportation Costs

The corollary to low labor costs was the cost of trans-pacific shipping. The downside with manufacturing in China has always been the transportation costs. However, when wages were low, most outsourcers considered the tradeoff worth it. No so, anymore. With oil prices on the rise, fuel costs have grown steadily. Likewise, a myriad of other factors has further raised the transportation cost of manufacturing in China. Currently, a low supply of shipping containers, port congestion, and imbalanced recovery are exacerbating the problem.

4. Higher Tariffs 

The recent trade war with China and ensuing higher tariffs have increased the cost of doing business with Mexico. In 2018, tariff taxes rose sharply on billions of dollars of Chinese products, leading many to question the viability of manufacturing there.

The Alternative

As the cost of manufacturing in China continues to rise, many producers are exploring other cost-saving strategies. Mexico is a popular nearshoring destination for many manufacturers due to several advantages: 

• Freight costs from Mexico are about a third of shipping from China.
• Mexican labor costs are lower than China’s, and more productive and skilled.
• Mexico also has more trade agreements in place for duty-free access to countries all over the world.

The 2020 crisis has taught us that a diverse footprint, versatility, and flexibility are essential to low-cost manufacturing. Many are finding that the cost of doing business in China is just too high. And in addition to cutting costs, relocating to other locations opens up benefits not available in China. 

Plastics manufacturing in Mexico is a key industrial center with numerous opportunities for growth. In addition to strategic advantages that make production in this country advantageous, domestic demand is also high.

As the world shifts to a regional model of competition, Mexico and the United States have formed a vibrant, mutually beneficial manufacturing dynamo to meet future challenges. Mexico excels in innovation, global trade access, and access to raw materials. For these and other reasons, Mexico is expected to continue being a leader in this vital market.

By the Numbers

According to the numbers provided by the International Trade Administration, the plastics and resins industry is a “best prospect industry sector” for Mexico. Across numerous parameters, the Latin American country is a strong location for any producer in the space. With strong domestic demand for plastics and a thoroughly integrated value chain with the United States, Mexico’s numbers are impressive.

• Mexico imported approximately $16.5 billion USD in plastic materials and products in 2019.
• The industry contributed an additional $3.5 billion USD in rubber and other related materials and products.
• Mexico consumes more plastics materials and products than any other US trade partner.
• 50% of plastic resins produced in Mexico are PET, PVC, or HDPE.
• Mexico is typically among the top 5 capital-goods importers for plastics in the world.
• There are over 4,000 plastics manufacturers in the country.
• In spite of an economic slowdown overall in 2020, Mexican plastics grew.
• Total market value in 2019 was approximately $40 billion USD.

State of Plastics Manufacturing in Mexico

US producers of the various plastics products – from moldings to 3D printing to automotive parts – will find a robust ecosystem in which to thrive. The supplier network in Mexico is rich, infrastructure is state of the art, and energy costs are affordable.

Furthermore, Mexico has focused on creating manufacturing hubs around allied industries to reduce costs and make resources more available. Some of the manufacturing hubs plastics producers can easily plug into include automotive, aerospace, electronics, medical devices, and many more.

There is currently quite an opportunity for supply chain vendors in Mexico. Because Mexico leads the way in plastics innovation and is such a heavy hitter in related industries, the market is growing steady. Tier 2 suppliers are especially in demand for the automotive industry. And as new markets open up, plastics producers are all levels in the value chain will discover openings for their niche in Mexico’s diverse manufacturing landscape.

Thriving Plastics Sectors

Some of the key areas for strategic advancement in the plastics industry are already thriving sub sectors. Others are new and innovative applications only recently established in Mexico. Some of the primary sectors representing a unique or well-established opportunity for foreign plastics manufacturers include:

Materials & Parts

A broad assortment of secondary and tertiary plastic materials is produced in Mexico. These materials include PP film, PVC, acrylic materials, and more. The Bajio region in central Mexico is a key opportunity for its dense automotive clusters. However, other regions like the Baja California also offer extensive factory and supplier networks.

New foreign companies in the automotive space are establishing plants in Mexico, and this increasing demand for sophisticated, high-tolerance plastic automotive components represents an important opportunity.

Capital Equipment

Mexico’s economic numbers for 2019 show they imported nearly half a billion USD worth of capital equipment for processing plastics and related parts. Among Germany, Japan, and others, the United States was a primary trading partner in this sector. The main imports in this sector from the US include injection machinery, blow molding equipment, as well as parts for extrusion and thermoforming.

Manufacturers tend to prefer US extrusion machinery technology, opening up vast opportunity for US plastics suppliers in this particular niche – especially auxiliary equipment for plastics processing, extruders, processing automation solutions, blenders, etc.

Plastic Resins

Mexican production of plastics resins typically exceeds 4 million tons – primarily, but certainly not limited to PET, PVC, and HDPE. However, this does not meet current demand. Mexico must aggressively import primary plastic resins to keep pace with current demand in this sector. Over two thirds of these imports come from US suppliers, but the country also imports resins from Canada, Belgium, Portugal, and others.

US suppliers of plastic resins have a strong opportunity to supply OEMs in Mexico. Small US companies can find potential clients in the numerous small and medium sized manufacturers throughout Mexico’s industrial areas.

Recycling

At approximately 58%, Mexico’s ratio of recycling plastic waste is higher than any other country in Latin America. Mexico’s exports of recycled PET and other resins are primarily manufactured by smaller recyclers. Larger companies typically ensure compliance with environmental and recycling standards by only producing for their own consumption. There will be greater demand in coming years for higher-purity and more advanced recycling technologies.

Mexico is leading the charge for a more circular economy. The country signed the National Agreement for the New Plastics Economy in 2019. And recent numbers show a high level of success in implementing its goals.

• 71% of the country’s packaging is reusable, recyclable, or compostable.
• 45% of plastics producers in Mexico have a post-consumer waste management plan.
• 68% of Mexican plastics manufacturers include an average of 10% of recycled content (PCR).
• 100% of plastics companies have removed added microplastics.

The Future

In spite of global market disruptions and changing consumption patterns in 2020, plastics manufacturing in Mexico seems poised to tackle these changing times and grow. The market proved itself resilient when, during an overall market downturn, plastics actually grew by 3%.

Due to an increased demand for packaging, sanitary, and other products that came of the recent health crisis, Mexico’s demand for plastics products is growing. However, in light of recent demand for more sustainable products and an increasingly negative stigma surrounding plastics, Mexico has responded with greater innovation and sustainability research.

Plastics manufacturing in Mexico is poised to lead the way for more sustainable technologies and improved recycling systems, thus providing a brighter future of the plastics industry. The numbers show a rich and diverse landscape for plastic-industry manufacturers who want to improve profitability and secure their place in this future growth.

Mexico took to the polls this week, and among several key takeaways, it’s clear that Mexico’s midterm election has been a net gain for democracy in the Latin American country.

The country’s current president, halfway into an agenda viewed by many as radical, lost seats in the lower house of the Mexican congress, and women won more seats than ever before in what turned out to be Mexico’s largest election ever.

While results are still being finalized and confirmed, early appraisals of the results from Mexico’s midterm election largely conclude that Morena, the left-leaning party of President López Obrador, has lost their two-thirds majority, while retaining a simple majority in the lower house. This means AMLO, as President López Obrador is commonly called, will have greater obstacles to his aggressive agenda to strengthen executive power and hamper business interests.

Here are the key takeaways from the Mexico’s 2021 midterm election results.

1. This was Mexico’s biggest election ever.

In another sign that Mexico’s democracy is strengthening and growing, this was the largest election the country has held to date. All three levels of government were involved, spanning 21,000 elected positions. With approximately 52% voter participation, some 93 million voters turned out to make their choices known – and with relatively little violence.

In spite of an attack on one polling location that left several pollsters dead and reports of body parts left at polling locations in northern Mexico, Mexicans turned out in overwhelming numbers. President López Obrador noted that organized crime kept rather quiet while congratulating Mexico on this historical turnout. This is a clear signal that Mexicans are increasingly confident in their elections and willing to participate in their governmental process.

2. Women performed better than in any previous Mexican election.

Mexico’s midterm election this week saw an historic number of women elected to leadership positions. If the results are confirmed, seven women will head regional governments, including Mexico City and six key Mexican states, including Baja California. Only 15 such positions were in play, yet women were elected in half of them.

3. Coalitions are key.

The president’s party, Morena, only secured about a third of the seats in the lower house of Congress. But with their alliance with Mexico’s Green party (PVEM), they will hold a simple majority. However, these two parties have little in common, and there are concerns they may fracture in the near future.

AMLO’s chief concern, however, will be a rather loose coalition of odd bedfellows: the center-left PRI, conservative PAN, and leftist PRD. This alliance has very little in common, leading to speculation that this minority coalition will not last long either.

However, if AMLO is to have any chance of continuing his “Fourth Transformation” agenda, his coalition with the PVEM is crucial. Even then, he does not have a “qualified majority” to change the Mexican Constitution. Yet, on the other side of the aisle, the opposition is entirely dependent on keeping together a very diverse coalition that may not last the remaining three years of AMLO’s presidential term.

4. This was a rebuke of strongman politics.

Mexico emerged from repressive, strongman politics around 20 years ago. The country began an ambitious drive for reform and democratic systems, emphasizing their commitment to institution building, pro-industry economics, and the rule of law.

In spite of painting himself as a man of the people, President López Obrador has drifted somewhat authoritarian. His policies have been accused of aggrandizing executive power and belittling local cooperative systems of government.

Yet, Mexico’s recent midterm election serves as a rebuke on this attempt to return to authoritarian principles. Mexico remains united around democracy, pluralism, and the accompanying stability and prosperity. While the president did not lose the recent election, he did not win it either. His party is still in power, yet they have lost their two-thirds majority in the lower house as well as several governorships.

The progress of the remaining three years until Mexico’s next election will depend on strong coalition building and renewed commitment to the values of democracy that Mexico now embraces wholeheartedly.

When manufacturing jobs shifted to China with the advent of NAFTA, the reason was simple: labor costs. US manufacturers quickly offshored major operations to take advantage of a huge labor pool vastly less expensive than labor in the US.

However, over the past decade or so, things have changed. Mexico, located just south of the border offers an incredibly sophisticated manufacturing dynamo with comparable labor rates. But there’s a major difference. China’s wages are rising more rapidly than Mexico’s. In fact, China has overtaken Mexico’s cost of labor and now exceeded.

The result? US manufacturers are bringing operations back home to the North American continent. But not the US, to Mexico. Nearshoring has replaced offshoring, and it’s no surprise why. In addition to the many advantages the Latin American country offers, labor there is simply more affordable.

Mexico or the US?

As China’s costs rise, US manufacturers simultaneously face pressure to reshore manufacturing operations to the United States. However, strictly from a cost-analysis perspective, sourcing manufacturing labor in the US is problematic.

The average manufacturing wage in the US is approximately $24 per hour. This does not reflect the wages for positions requiring high-skilled labor. This is only an average across the board. Manufacturing wages in the US average $24/hour. But in Mexico, literally just across the border, we see a stark contrast. The average manufacturing wage is only slightly less than $3 per hour.

Extrapolated across the average work week, this means US firms stand to lose on average around $44,000 per worker each year by sourcing labor in the US. At a ratio of nearly 4 to 1, US labor costs are obviously no match for manufacturing in Mexico.

This steep disparity is further amplified when we consider that labor is often the primary business expense in manufacturing, a very labor-intensive business. For some manufacturers, labor can account for up to 70& of their total expenses. Thus, even a small savings in labor costs can be significantly beneficial for the bottom line.

But there are other savings in Mexico besides wages. Mexico also offers lower healthcare and benefits costs. And while employers often provide lunches or transportation for workers, these additional expenses are substantially offset by the reduction in other benefits and wages. Total compensation packages in Mexico are a fraction of those in the US, where employer-provided healthcare alone recently surpassed a crippling $20,000 per worker.

Mexico or China?

When NAFTA was signed by the US, Canada, and Mexico, Mexican labor costs were strikingly higher than China’s. Twenty-five years ago, Mexico was nearly three times more expensive than China. And even though China was much farther away and transportation costs and wait times were much higher, the substantial savings in labor costs made manufacturing in China worth it.

However, in the recent decade, that savings has evaporated. The country’s economic policies, currency manipulation, and cultural shifts have resulted in a dramatic increase in wages without a rise in productivity. The result is an exodus out of Asia.

The average manufacturing wage in China is around $6 per hour – considerably higher than wages in Mexico. But it’s not just the current level of wages that make China less attractive to US manufacturers. Over the past decade, the rate at which China’s wages have been increasing is a sharp curve. Meanwhile in Mexico, wages have remained relatively stable, rising very gradually and predictably. Mexico now has the lowest manufacturing wages of the two US trading partners.

But there’s more to this story. Mexican productivity has increased moderately as well. Mexican assembly and manufacturing workers are turning out more product for the time invested than in the past. Likewise, unlike China, Mexico’s manufacturing workforce is highly skilled. Universities and technical programs – especially around industry clusters – continue to churn out highly specialized manufacturing technicians and engineers to match specific industry needs.

New Business Driven by Low Labor Costs

Because Mexico offers highly skilled manufacturing labor at costs lower than China and dramatically lower than the US, it comes as no surprise that new business is streaming into Mexico. Major US producers like Ford, Caterpillar, General Motors, and many others are not only attracted by lower wages, but also by the proximity, stronger IP protections, and global free-trade access Mexico offers.

The automotive industry has recently announced huge investments in the Latin American country, but other industries are also relocating or nearshoring to take advantage of the lower labor costs. Leaders in industries like medical devices, electronics, furniture, aerospace, and others are increasing their competitive edge in Mexico without sacrificing quality. And the trend looks likely to continue for many years.

With an eye toward the future, Mexico is investing heavily in infrastructure. Several projects have already begun, and new ones are being announced regularly – both from the public and private sector.

As the country seeks to overcome the setbacks of 2020, key areas of improvement have been identified. And both the federal government and private companies are stepping up to aggressively position the Latin American country for a strong economic recovery.

The Reboot

In 2019, Mexican President Andrés Manuel López Obrador announced a round of economic investments related to infrastructure for the next four years. However, the investment project was placed on an abrupt hold in 2020 due to the global crisis.

But on October 5, 2020, President López Obrador announced a reboot. In partnership with the private sector, Mexico is investing approximately 300 billion pesos in approximately 39 infrastructure projects. These projects will significantly improve several sectors important to the Mexican economy, including:

• Energy
• Tourism
• Transportation
• Manufacturing
• Communications
• Water Ports

According to a statement by Jorge Nuño, spokesman of the Unit of Investments of the Ministry of Finance, this investment plan will represent 1% of Mexico’s GDP and create approximately 185,000 new jobs for Mexican workers.

He went on to stress the importance of Mexican cooperation in the USMCA and the opportunity to leverage Mexico’s competitive advantages for continuous growth. Mexico has consistently emphasized supply chain health, state-of-the-art industrial facilities, and strong transportation and energy infrastructure to grow their economy. This has made Mexico the manufacturing partner of choice for many international producers, even beating out China in many cases.

By the end of 2020, many of the announced projects were already underway. And in November of that year, Mexico announced a second set of infrastructure investments. Nine of these focus on electricity sector improvements. This brings the public sector commitment to $25 billion USD, and the drive is on for an additional $100 billion USD in private investment.

Key Ways Mexico is Investing in Infrastructure

Several projects Mexico is targeting represent at least – and in some cases, well over – $1 billion USD. These are some of the strategic areas of improvement Mexico is investing in to boost their economy long term.

1. The Maya Train

Because tourism is so important to the Mexican economy, the top priority will be the already-under-construction rail line connecting Tabasco, Chiapas, Campeche, Yucatán and Quintana Roo. The railway will be used for both passenger service and freight.

The project is estimated to come with a price tag around $8 billion USD and stretch 1,500 kilometers.

2. The Mexico-Toluca Line

The 58-kilometer railway line connecting Mexico City to Toluca is also a key priority. This line represents approximately 90 billion pesos of investment, and is expected to be completed by 2023.

3. The Felipe Ángeles International Airport

This international airport will be entirely built and managed by the federal government and military personnel. All 74 billion pesos will come from the public sector. However, this highly important airport will create several highway projects to be funded with cooperation from private investors.

4. The T-MEC Corridor

This private-sector initiative is being spearheaded by National Standard Finance and Caxxor Group. It is expected to cost upwards of $3.3 billion USD, and will involve several large construction projects.

The largest of this series of projects will be a sea port that transports freight via rail through Mexico, the US, and into Canada. This includes plans to modernize and improve approximately 167 kilometers of existing rail and build approximately 180 kilometers of new rail.

5. The Tehuantepec Isthmus Rail Corridor

This interoceanic corridor will rehabilitate approximately 213 kilometers of rail line connecting the Salina Cruz port to the Coatzacoalcos port. With about $5 billion USD allotted to the project, most of this budget will go to modernizing and expanding the ports for improved handling of cargo.

The aim is to connect Mexico’s gulf coast to the Pacific at the country’s narrowest point. It will also include highway projects, a new gas pipeline, and 10 new development poles to attract new investment in a number of industries.

6. Baja Power Infrastructure

This ambitious project is entirely funded by the private sector – in particular, Mexico’s biggest mining company, Grupo México. The company announced in May, 2021, they are investing $3.1 billion USD into Mexico’s Baja California region to build new major transmission lines and expand mining capacity in a highly productive economic region.

The project is expected to greatly reduce the cost of energy throughout the state and lead to more efficient manufacturing and industrial operations in addition to benefiting other commercial and domestic customers. The Baja region is home to numerous industries and stands to become an even more attractive home for the industry with lower energy costs.

The company’s new El Arco mine, slated to open in 2027, will greatly benefit from this infrastructure upgrade. The mine is expected to produce approximately 190,000 tons of copper per year.

With Mexico investing so much in infrastructure improvements over the next few years, the country will likely enjoy continued economic recovery and sustained growth. Already a hot spot for foreign investors like China, the US, and Germany, Mexico’s foreign direct investment is expected to continue strong, pouring into this industrial powerhouse for years to come.

As the world climbs out of the COVID crisis, those involved in international manufacturing are concerned about the state of border crossings and current restrictions. When will the borders open back up? Just what are the US-Mexico border restrictions still in effect? What are the current rules, and when will they be lifted or changed?

Below are the current US-Mexico border restrictions and how the governments of Mexico and the United States are currently handling border crossings.

The Initial Lockdown Crisis

On March 21, 2020, the United States and Mexico jointly closed their shared border in an effort to curb the risk of Covid-19 transmission. The US Department of Homeland Security enacted several policies such as no longer housing detained illegal immigrants in US detention facilities and restricting non-essential border crossings.

A series of emergency restrictions went into a place that have since been re-instated to a large extent, month after month, well over a year after their first use. The move has not been without controversy, and some are arguing for the lifting of these restrictions, citing the economic hardship they cause for the border regions.

Current US-Mexico Border Restrictions

The cross-border restrictions have recently been reinstated through at least May 21, 2021. Each month, the border lockdown is reinstated, and it likely to continue past May 21. Air travel is not currently limited, but travelers are required to obtain a negative COVID test to fly into the US. Mexico does not have such a restriction for air travelers.

US manufacturers taking advantage of Mexico’s maquiladora manufacturing-for-export program are likely to be concerned about how they may enter Mexico or return to the US under these emergency restrictions – whether for trucking, management visits, or living abroad. While travelling by air, freight rail, or open sea is virtually unrestricted at this time, the following are the current US-Mexico border restrictions for land crossings.

Essential Travel Only

The land border is effectively closed to all travel deemed “non-essential.” Essential travel expressly excludes the following types:

• Sightseeing
• Pleasure-boat travel
• Recreation
• Gambling
• Cultural events
• Shopping/purchasing trips for supplies readily available in their country
• Visiting friends and family unless a primary caretaker
• Unnecessary mail pickup and drop-off
• Mexican nationals with US passports not allowed entry

Essential travel encompasses the following:

• Lawful citizens are allowed back into their home country
• Medical trips
• Attending educational institutions
• Travel for work across the border
• Emergency response and public health purposes
• Official government travel or diplomatic missions
• Military-related travel
• Lawful cross-border trade; trucking cargo and manufactured goods between Mexico and the US is still permitted.

The current restrictions note that most business travel and shipments are permitted. But if in doubt, travelers should consult the Department of Homeland Security (DHS) and Customs and Border Protection (CBP) requirements for specifics.

Travelling to Mexico

The above restrictions are primarily those issued by the US Department of Homeland Security. The Mexican Government has taken a more permissive approach in their restrictions. Passengers and vehicles are freely entering Mexico from the US. Tourist permits and temporary vehicle import permits are routinely being issued as normal.

However, anecdotal information indicates a situation in flux. Each border crossing and port may handle different situations differently. US citizens who have legal residency in Mexico are freely able to gain admission via their temporary residence card or visa sticker. But all others should verify before travelling to Mexico.

 When Will the Border Re-Open?

US-Mexico border restrictions seem to be extended each month, and it’s difficult to know when they will end. The current order expires on May 21, but is expected to re renewed into June.

Business is booming in Mexico as the country approaches a full recovery. The economic outlook is good, and as cases in both countries fall, hopes are that business as usual will resume very soon.

Mexican President Andrés Manuel López Obrador recently expressed his intention to discuss re-opening the US-Mexico border in his upcoming virtual meeting with US Vice President Kamala Harris. As it currently stands, business travel remains unhindered.