By Tim Hanley - October 17, 2014
I had a very interesting week in Mexico recently and met with some of Deloitte Mexico’s manufacturing clients in Mexico City and Monterrey. One of my significant impressions from the visit was the visible amount of investment that is occurring by multinationals in this increasingly promising economy, which is often outshined by talks of the BRIC markets. As you read this article, I hope to share some of the interesting facts I learned about Mexico that explains why it is currently such an attractive place for investment.
Mexico reportedly drew a record $35.2 billion in foreign direct investment (FDI) last year. Not surprisingly, the automotive sector is a magnet for investment with automakers (and their suppliers) including Kia, Nissan, Honda, Volkswagen, and Mazda signaling plans to invest in Mexico over the next few years. Many of the major automakers already have a significant presence there. In fact, Mexico is currently ranked 8th among 40 countries by the International Organization of Motor Vehicle Manufacturers (OICA), producing over 3 million vehicles in 2013. What is perhaps a little known fact is that Mexico is the fourth leading car exporter, behind Germany, South Korea, and Japan. An export-orientated economy, the country has more free-trade agreements than any other country, building agreements with 44 countries over the years. The North American Free Trade Agreement (NAFTA), for example, introduced two decades ago in 1994 has helped to pave easier access for Mexican goods into the U.S. and Canada.
Mexico continues to be challenged to stay globally competitive to rival manufacturing nations such as China and Brazil. The automotive sector again, as an example, has been a growing area of capability for Mexico employing some 40 percent of all of the automotive workforce in North America.1 A major factor is the lower labor costs with Mexican autoworkers earning around $8 an hour, according to the Center for Automotive Research, compared with the U.S. average of $37.2
Besides the automotive industry which has flourished, Mexico is also trying to expand its high-tech industrial manufacturing and aerospace manufacturing with multinationals also looking at the country as a manufacturing base. To sustain and indeed evolve its future manufacturing competitiveness, however, Mexico will likely need to look at its talent needs. As cited in Deloitte’s 2013 Global Manufacturing Competitiveness Index report, talent-driven innovation will be the leading driver of global competitiveness. Global CEOs we surveyed ranked Mexico 12th in terms of industry competitiveness and expect that its position may drop slightly to the 13th spot by 2018. To bolster competitiveness, Mexico could seek to improve its capacity for innovation and quality of higher education and training. The country ranks in the middle of the pack in these areas based on the 2014-2015 World Economic Forum Global Competitiveness Report.
Finally, as I was concluding my visit, the Mexican government announced a landmark energy reform. With energy being a significant cost to manufacturers, the announcement caught the attention of multinational companies and other stakeholders worldwide. It will be interesting to watch as things unfold to see if this energy development will help to bolster future interest in Mexico as a place to invest.
Have questions or comments? Share your thoughts with me @TimPHanley.
1New York Times. 18 November 2013.
2Los Angeles Times. 24 February 2014.
Tim Hanley is the Global Leader of the Manufacturing Industry group of Deloitte Touche Tohmatsu Limited (DTTL). In his global industry leadership role, he directs strategic initiatives and investments to grow Deloitte member firm market share within the manufacturing industry. During his distinguished 35-year career, Hanley has led teams serving all business aspects, including consulting with top management regarding organizational financial strategy development and execution, acquisitions, and market development.