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Mexico Trumps China as Global Manufacturing Leader

10 November, 2013

Consumers worldwide should get used to seeing “Made in Mexico” on everything from high-tech items to everyday goods, according to a new report by Morningstar that compares the many advantages for companies operating from what is poised to become Latin America’s largest economy in the immediate future.

“Wages have been sharply and steadily rising in China over the past decade, just as Mexico’s manufacturing landscape has undergone a dramatic shift, marked by high-tech manufacturing hubs that are synchronous with American manufacturing needs,” writes Morningstar. “Mexico has emerged as an appealing alternative to China for companies looking to expand or relocate their manufacturing facilities.”

There are a variety of solid economic and political reasons for this shift, including a more competitive geographical location, a younger more educated workforce, market-friendly investment incentives from Mexico’s government and the fact that Mexico holds more free trade agreements than any other country. This April, the International Monetary Fund’s (IMF) Monetary and Financial Committee reported that China’s GDP this year is expected to drop significantly, while Mexico is expected to grow.

“In early May,Fitch lifted its ranking on Mexico’s sovereign foreign currency credit rating  to BBB-plus, the country’s first upgrade since 2007, buoyed in large part by optimism about the country’s reform agenda,” writes Morningstar.

This progressive reform agenda promises to make history and has already helped strengthen Mexico’s currency while improving its lucrative investment environment, addressing key issues such as labor and education reform, as well as opening up the nation’s telecom and energy sectors to outside investment. These changes are expected to be voted in over the next month and will prompt Banco de Mexico (Banxico) to raise future GDP estimates to at least 6 percent.

Furthermore,Mexico has developed an innovative assembly for export manufacturing base, known as maquiladoras, which are located in border states as well as in Mexico’s interior, where a low cost of living, modern infrastructure and easy transportation into and out of the region make it a very attractive alternative to China. In addition to auto manufacturing, Mexico’s aerospace industry has also grown substantially over the last decade, as companies have moved to take advantage of the many benefits that come with setting up operations here.

Finally, affordable energy will likely also play a role in the coming years, as foreign direct investment soars and companies move to take advantage of the fact that Mexico is sitting on the world’s largest shale gas resource base.

Would you like to know more about the investment implications of Mexico’s bright economic future? Leave your question in the comments section below and we will be happy to reply!

Topics: Economy