The following is part three taken from a recent report done by the American Chamber of Commerce. Also consider reading parts one and two. This final section has to do with the competitive edge Mexico has when dealing with the U.S. markets.
Nothing speaks louder and more directly to the international business community’s confidence in Mexico than the spate of recent investment decisions by multinational companies. In the first few months of 2010 alone, millions of dollars in foreign direct investment commitments have been announced. It is projected that FDI for 2010 will total $19 to $22 billion, which would be on par with 2006 levels.
Walmart—the leading retail chain in Mexico—recently announced plans to invest $1 billion to open 300 new stores throughout the country in 2010. Retailers such as Lowes and Best Buy have just begun operations in the country where The Home Depot has been very successful for the last several years.
In the manufacturing sector, the list of projects is extensive including Nissan’s plans to invest $600 million in a new assembly plant for the new Micra; the Chrysler/Fiat investment of $550 million; Procter & Gamble’s decision to build a $250 million razor blade plant in Guanajuato; and the new $445 million Freightliner truck plant in Saltillo, to name just a few.
Much of the growing interest in Mexico can be attributed to the global near-sourcing trend. There has been a shift in off-shore production strategies from one that focuses heavily on low labor costs to one that puts more emphasis on geographic proximity. The near-sourcing (or near shoring) trend is the result of a number of factors, but is attributable primarily to the rising cost of freight which is expected to remain high into the foreseeable future. Low-cost fuel made transportation costs negligible and for many years allowed manufacturers to locate operations in the lowest-wage countries. But as fuel prices rose from 15% of a carrier’s operating costs to 40%, the dynamics changed. CIBC World Markets reported that the transportation cost of Asian imports to the United States is roughly the same as imposing a 9% tariff.
This trend clearly favors Mexico. The ability to move goods from Mexico to the U.S. in a matter of days by rail or truck, versus a matter of weeks from Asian ports, is a tremendous advantage for many types of manufacturers. In addition, the ability to communicate and do business in the same time zone is often of vital importance. Unlike their counterparts in Asia, Mexican managers can communicate with U.S. headquarters and often resolve issues in the same day.
- Mexico is also benefitting from rising labor costs in China and Mexican labor costs are approaching parity with Chinese labor rates according to a study by BCG – Boston Consulting Group. By the end of 2010, it is expected that average wages in Mexico will be at 120% of Chinese labor costs, down from 200% in 2008. With the continued appreciation of the Yuan, Mexico will become the lower labor cost country.
- Second, the labor pool is large and young. Over half of the Mexican population is under the age of 35.
- Third, there is an abundance of managers with an excellent command of English, many having been educated in the U.S. With 15 ears of experience under NAFTA, Mexican managers have become very familiar with U.S. business and management practices.
- Fourth, most of Mexico is in the Central Time Zone. Consequently, the time difference with the U.S. if there is one at all, is negligible.
- Finally, Mexican have a Western point of view on cultural matters very similar to the U.S. The values and interests of Mexican–family, religion, personal growth, sports, etc.–track very closely with those of the U.S.