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Companies are moving to Mexico in large numbers. Such movement of companies to Mexico had already been on the rise in the 1980’s. Shortly after NAFTA went into effect, trade with Mexico increased dramatically. Mexico’s low cost wages with close proximity to the US and an increasingly skilled and trained workforce have been attractive for years and are continuing to be relevant for US manufacturers in an increasing way today for those US Manufacturers looking to lower labor cost by shifting manufacturing to Mexico.
In 1994, NAFTA (the North American Free Trade Agreement) a trade agreement between Canada, the United States, and Mexico went into effect. NAFTA eliminated trade barriers and lowered or eliminated tariffs between these 3 countries.
In 2006, the Mexican government implemented the IMMEX program. The implementation of the IMMEX encouraged even more companies to consider moving to Mexico in order to take advantage of a series of business-friendly laws for manufacturers.
A new treaty, USMCA (US, Mexico, Canada Agreement) is effective July 2020. It modernizes NAFTA, but keeps most of the benefits of NAFTA in place. The new treaty continues a decades-long trend of the US, Mexico and Canada working together as a trading block for the mutual benefit of the citizens of these countries. Many US companies are finding the benefits of these collaborative arrangements compelling when considering Mexico as a manufacturing hub.
Trade with Mexico hasn’t slowed down. Manufacturing in Mexico has enjoyed a record setting pace of growth for the last few years as various states impose increasing regulation and minimum wage hikes on labor intensive manufacturers. The economic boom in the United States over the last decade and an increase of globalization has caused manufacturing jobs to continue to move outside the US, with Mexico being a prime destination.
Some of the US departing manufacturing jobs have gone overseas to China and other countries, which Mexico is increasing the recipient of many such jobs. The low cost labor force, increasing base of skilled workers and close proximity to the US have made Mexico a preferred choice for many a Manufacturer. As of this writing, Mexico’s economy ranks #15 in the world in GDP, and #2 in Latin America. Mexico is projected by analysts to continue moving up the ranks over the next several decades.
This is thanks in no small part to the benefits of manufacturing products in Mexico.
Companies in the United States and Canada have taken notice. In fact, entire production facilities for various companies have been moved from the United States to Mexico. The financial benefits are staggering in many cases. Especially in the case of medium to large manufacturing companies.Proximity to the US, low labor costs and low duties make Mexico an attractive option for US and Canadian owned companies looking for an offshore manufacturing plant.
Although US companies are most likely to get some of the greatest benefits from manufacturing in Mexico, it’s not just US companies making the move. Manufacturing companies from all around the world are moving to Mexico.This includes Chinese companies moving to Mexico, since trade tensions with the US and China are at historical highs.
Proximity – Faster travel times improve logistics as well as turnaround time and make it easier to manage operations which operate in similar time zones. Mexico has also done a great job of improving infrastructure and transportation methods to increase their appeal to the United States and Canada. Ports have improved, major street and bridge investments have been made and the two governments are working jointly on projects to reduce border wait times.
IMMEX – Raw materials costs, duties, and manufacturing costs are decreased thanks to IMMEX and certifications that can be obtained.
Low Cost Labor – Mexico’s wages are not only MUCH lower than the wages that would be paid in the United States, they are also lower than China’s, where annual wage cost increases have exceeded 20%. The peso has historically tracked closely to the dollar with slight erosion of value. This allows companies to avoid major labor content cost increases in their products.
Quality – The quality of products coming out of Mexico is comparable to most products made in the United States or many asian countries. Mexico has a young, well educated workforce when compared to China and their productivity level is high on a global scale. Many US labor tasks are routinely performed by hispanic labor, as this labor pool has a history of being consistent and hard working.
Although there is a debate about the loss of jobs for Americans due to manufacturing in other countries, there is no doubt that Americans still benefit from the arrangement. US based businesses can make a higher profit margin by moving manufacturing companies to Mexico. Americans also benefit from the cost savings by paying less for products that are made in Mexico.
Giving work to our Southern neighbors also strengthens the region as a whole. Manufacturing jobs are becoming less attractive to the US worker, but continue to be attractive to the worker in Mexico. Providing good stable employment to the worker in Mexico, slows down illegal immigration and benefits all parties in the trading block.