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LATIN AMERICA: "U.S.-Mexico Trade - report"

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back to index backLATINtalk March,  2006

Industrial Mexico Comes of Age

To view Mexico merely as a low-cost labor market is to miss the bigger picture.

Referring to Mexico as an "emerging market" might still work in the securities and investments world, but it is fully emerged as a market for corporate investment in new facilities. This is certainly true of the U.S. border region, rich with maquiladora facilities and busy border crossings, but it is true of much of the rest of country, too. Maquiladoras are not limited to the northern border area; cities throughout Mexico are home to dozens of facilities producing goods for U.S. manufacturers, from Merida and Campeche on the Yucatan peninsula to Puebla in the south to Gomez Palacio, Durango and Zacatecas in central Mexico. Monterrey, Chihuaha and Hermosillo in the north have long been major industrial centers with strong maquiladora representation. And a new industrial region is emerging northwest of Mexico City in the vicinity of Queretaro and Celaya. Some of this growth is due to state incentives to invest in the region.

Mexico's maturity as an industrial market can be seen in its growing appeal to certain industries, not just to any industry seeking to lower its labor costs. That benefit still rings true, but logistics advantages relative to other markets, especially Asian ones, are increasingly seen to be just as important.

"A lot of companies have learned their lesson, and many of them have come back from China," says Michael White, managing director of CB Richard Ellis — El Paso/Juarez.

"More to the point, they have determined what products, based on size and logistical timeframes, can be produced effectively in Asia and those that cannot. The latter tend to come to Mexico."

Blackberry and similar devices and digital cameras — small, light-weight electronics with long shelf lives — are among the products White says it still makes sense to produce in China; they are low margin and easy to transport via shipping container. Other candidates for Asian markets are small appliances, lighting — especially labor-intensive lighting products — shoes, toys and small motors.

But large capital goods, such as refrigerators, flat-screen televisions with their voluminous packing material to protect the screen and other big-ticket items are ideal candidates for Mexico. Time-sensitive products, too, are increasingly produced in Mexico, such as the line of computers that has to be at all of a retailer's distribution centers in time for a holiday or special promotion. "Those kinds of products are destined for Mexico, whereas in 2001, everything seemed to be going to Asia," notes White.

"Industrial America has figured out what the fit is for Asia, and what the fit is for Mexico."

U.S. companies increasingly are locating key functions in Mexican markets, even as states compete more aggressively to keep those functions stateside. Among the disciplines migrating to Mexico (and certainly to other markets globally, as well) are software development, design and engineering, data management and short-term development projects.
As for heavy industry, there is no shortage of investment from manufacturers, particularly automotive assembly plants.

The aerospace industry has more than a beachhead in Mexico, and cottage industries are emerging, such as specialty service and repair enterprises.

Another burgeoning market for Mexico, adds White, is mid-sized companies — those with under $50 million in sales and just a handful of senior managers. "They cannot operate or manage a plant in Asia as easily as they can in Mexico. If they're in Cleveland, for example, it takes two days to travel to a plant in China, whereas they could be at a plant in Mexico the same day they left. For a small company, that cost of time and resources is tremendous. And the difference in wages between China and Mexico is only about $2 an hour. So if you're running a 300- to 700-person plant, it really doesn't make a lot of sense to try to source it in Asia."

Source: Site Selection - GAI

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Industrial Mexico Comes of Age
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