Due to several factors, many US businesses find the profitability of manufacturing in Mexico high enough to justify the trouble. But what many don’t realize is that the US market is not the only way to profit from manufacturing south of the border.
Due to Mexico’s unparalleled number of free trade agreements (or FTAs), companies operating production plants there are able to export to a whole host of nations in every major global market. In fact, FTAs are a key dynamic driving its export manufacturing success.
Manufacturers come to Mexico because they are seeking lower labor costs while still being able to export to the United States. But whereas the US has complicated trade relations with many countries, Mexico has aggressively courted major consuming nations in every corner of the world. Even China is doing massive business there.
With so many things to offer – from a strategic location, a highly skilled workforce, and a range of trade agreements – manufacturing in Mexico means profitability on a much wider scale than you might have realized. Low-cost manufacturing for export makes so much more sense in Mexico when you take into consideration the extent of their market access.
Mexico one of the world’s most open economies with active FTAs in place with over 50 countries. No two ways about it, Mexico leads the world in international trade. Not only are they a signatory to the massive USMCA (formerly NAFTA), which gives them duty-free access to all of North America and a market of about 400 million consumers, but they also have agreements on other continents.
These multilateral agreements make profitability for manufacturing considerably higher than in other countries by offering preferential access to global markets like Europe, all of North America, most of Asia, South America, and nations in Africa as well. But it’s not just access for export. These agreements also allow importing global materials with little to no tariffs. Components, technology, equipment, raw materials – these supplier networks are vast and affordable.
When manufacturing in Mexico, understanding their free-trade partners is crucial to strategically boosting profitability. Mexican free trade agreements make expansion and a much broader market possible. Some of these FTAs are more valuable to US companies than others. But they all present unique opportunities to build a more profitable export manufacturing business.
Mexico also offers manufacturers participation in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), formerly known as the Trans-Pacific Partnership (TPP). The United States is not a signatory on that agreement. But opening a factory in Mexico gives US companies the opportunity to do business with the Pacific Rim countries, as Mexico joined the agreement in 2018.
This landmark agreement integrates major markets in the Pacific in areas like intellectual property protections, e-commerce, and labor standards, and is expected to significantly boost trade and investment in the Asia-Pacific region.
Through 15 free trade agreements or FTAs, companies manufacturing in Mexico can boost profitability through preferential trade access to 60% of the world’s gross domestic product. Some of these include notable agreements like:
US companies are able to take advantage of better profitability by manufacturing in Mexico thanks to a number of benefits. Doing business in Mexico eliminates or reduces tariffs on goods traded between countries, making manufactured exports more competitive and affordable. Likewise, the benefit of having a larger customer base without quotas or restrictions means more profit potential.
Another key benefit is Mexico’s renowned protection of intellectual property rights. Manufacturing in Mexico means that importing from and exporting to other countries is securely backed by protections against theft of patents, trademarks, and copyrights that are codified in law. And the cooperation and collaboration between countries doing business with Mexico creates a healthier exchange of knowledge and skills, which in turn drives creativity, innovative solutions, and sustainable economic growth.
Mexico’s commitment to free trade is an opportunity for US companies to expand to other markets, using approximately the same preferential tariff norms they’re accustomed to within USMCA. Many of those same protections are available around the world when manufacturing in Mexico. In turn, foreign investment is on the rise, supplier networks are strengthening, and infrastructure in the manufacturing centers is state of the art.
When manufacturing in Mexico, profitability is a matter of not just lower costs, but also greater access. While Mexico is known for its cost savings, the access to global markets and resources is an often-overlooked advantage. But because of their commitment to free trade, they offer companies the chance to grow, innovate, and create new opportunities by taking advantage of preferential access to the global economy at large.
