Executive Briefings

Foreign Direct Investment in Mexico 'Unprecedented'

Mexico manufacturing has come a long way from the early days of simple product assembly in bare bones "maquiladoras" just over the U.S. border.

The current level of foreign direct investment into Mexico by global manufacturing powerhouses is unprecedented. More importantly for suppliers, that FDI also translates to opportunity for manufacturers with a physical presence in Mexico.

By far, one of the leading sectors transforming the Mexican manufacturing landscape is the automotive industry. In recent years, Mexico has become an attractive hub for international automotive OEMs, which invested more than $31bn dollars in establishing or expanding manufacturing plants in the country between 2000-2014, according to industry analyst group HIS Auto. Traditionally, lower labor costs and the ability to efficiently build their smaller models were the initial draws for industry juggernauts like Honda, General Motors and Nissan.

While cost-effective labor remains appealing to foreign OEMs, a more recent attraction is Mexico’s overall operating costs, which are now roughly on par with costs in China, but with greater productivity, according to Boston Consulting Group. Some of that is due to ever-growing costs in China. But it is also about proximity, as Mexico affords easy access to the Canadian, U.S. and South American markets.

Further, Mexico’s reach goes beyond the Americas. The nation has favorable trade agreements with 44 different countries, and is becoming a hub for international OEMs, particularly European manufacturers.

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The current level of foreign direct investment into Mexico by global manufacturing powerhouses is unprecedented. More importantly for suppliers, that FDI also translates to opportunity for manufacturers with a physical presence in Mexico.

By far, one of the leading sectors transforming the Mexican manufacturing landscape is the automotive industry. In recent years, Mexico has become an attractive hub for international automotive OEMs, which invested more than $31bn dollars in establishing or expanding manufacturing plants in the country between 2000-2014, according to industry analyst group HIS Auto. Traditionally, lower labor costs and the ability to efficiently build their smaller models were the initial draws for industry juggernauts like Honda, General Motors and Nissan.

While cost-effective labor remains appealing to foreign OEMs, a more recent attraction is Mexico’s overall operating costs, which are now roughly on par with costs in China, but with greater productivity, according to Boston Consulting Group. Some of that is due to ever-growing costs in China. But it is also about proximity, as Mexico affords easy access to the Canadian, U.S. and South American markets.

Further, Mexico’s reach goes beyond the Americas. The nation has favorable trade agreements with 44 different countries, and is becoming a hub for international OEMs, particularly European manufacturers.

Read Full Article