In 2011,General Motors,which is the largest automaker in the U.S.,announced it would invest upwards of $540 million to expand plants in Mexico. This move added GM to a long list of other manufacturers who have already realized that Mexico real estate offers the best value in terms of location and production.
“With lower shipping costs and increasingly competitive wages,Mexico is enjoying a manufacturing boom,” writes CNBC. “It is attracting billions of dollars in foreign investment from firms that are building factories to supply the North American market – a concept known as reshoring.”
Automakers Nissan,Audi,Honda and Mazda will all open plants in Mexico in the near future,while Italian tire manufacturer Pirelli & C. plans to invest $300 million in new factories by 2015 and Swedish appliance maker Electrolux opened a facility in Juarez,Mexico,in 2011. In addition,aluminum producer Alcoa expanded in Mexico,while U.S. companies such as General Electric,Honeywell and Hawker Beechcraft are already producing here.
“The influx shows no signs of abating,” writes CNBC. “Foreign direct investment (FDI) in Mexico reached $19.4 billion in 2011 – with nearly half of that total destined for the manufacturing sector,according to the Mexican Ministry of the economy."
Much of Mexico’s appeal for manufacturers involves lower labor costs and proximity to the world’s largest economy. Today,the difference in labor costs between Mexico and China is a mere pennies per hour,and higher fuel prices have prompted manufacturers worldwide to produce goods closer to their target market.
In this way,proximity also plays a role in Mexico’s advantage over China. According to Gabriel Lozano,J.P. Morgan’s chief economist for Mexico,it costs around $5,000 today for manufacturers to ship a container from China to the United States,compared with less than $3,000 to ship the same amount of freight from Mexico. In this way,the numbers speak for themselves.
“We expect that trend to continue and build into 2013 and 2014,” shared Gabriel Lozano,J.P. Morgan’s chief economist for Mexico. “You have all these factors suggesting that Mexico can become a very important manufacturing hub.”