Tracking the Momentum of Manufacturing in Mexico Over the Past 12 Months

As the last months of the year rapidly approach and manufacturers set their sights on 2025, it’s a good time to reflect on how industry dynamics have shifted over the past 12 months.

Though the industry is constantly in a state of flux, manufacturing in Mexico remains the best option for those with a U.S. audience, which is reflected by record-breaking shifts. Earlier this year, data confirmed a new milestone was achieved as Mexico surpassed China as the top exporter to the U.S. for the first time in two decades.

And, with new foreign direct investment (FDI) and industrial facilities on the horizon, the momentum continues heading into 2025.

FDI in Mexico Trends Upward

Manufacturers seek cost-effective solutions with a reliable infrastructure to support expanding production. For decades, Mexico has fulfilled this nearshoring need with U.S. and other global manufacturers across multiple sectors setting up facilities and branching off from its core hubs.

In 2023, Mexico’s exports to the U.S. reached a record $475 billion. By the end of 2024, Mexico’s total exports are expected to be even higher with nearly 83% of them headed to the U.S. Mexico has already exceeded $31 billion in FDI in the first six months of 2024, representing a 7% increase over the same period in 2023.

Feeding this trend is the continual tensions between the U.S. and China and the USMCA incentives for North American trade. With the USMCA requiring 75% of auto content be made in North America, it’s no surprise the automotive sector accounts for nearly 40% of the total FDI.

The production of EV models is also driving new investment and the need for production, as demonstrated by the recent FDI by BMW, Tesla, Audi, and Ford, as they expand their EV facilities throughout Mexico.

Chip manufacturing has also surged in the past year with FDI from Foxconn to build what’s been touted as “the largest GB200 production facility on the planet” in Guadalajara, as well as the U.S. and Mexico governments’ partnership to “create a more resilient, secure, and sustainable global semiconductor value chain.”

Labor Cost Increase Doesn’t Sway Competitive Advantage

Low labor costs in China have historically been a leading reason why U.S. manufacturers have outsourced production. However, as with other areas of the globe, the country’s increasing labor costs (and trade war with the U.S.) no longer counterbalance the expensive transportation costs necessary to secure shipments.

While Mexico has also experienced an increase in labor costs in the past year, its range still remains highly competitive when compared to the U.S. The salary for an entry-level worker in Mexico is $6.50 per hour compared to $24 in the U.S. Plus, the close proximity from Mexico to the U.S. market saves on transportation expenses which adds to the savings advantage manufacturing in Mexico has over China.

The availability of skilled labor in Mexico has been a determining factor as well as the U.S. has struggled to secure industrial talent at home. However, with Mexico’s unemployment rate under 3%, manufacturers must be prepared to offer competitive compensation packages to recruit and retain top technical talent.

Shelter Services Support Manufacturing Success

To maximize production opportunities and prepare for ever-changing industry dynamics, it’s ideal to work with a shelter company that can provide local insight, experience, and expertise.

There are several key areas a shelter company can provide support. The first is site selection. Finding the right facility and securing an industrial lease is the priority before production can begin.

A shelter can create a cost-competitive analysis to narrow down locations that will be the best fit based on sector, labor availability, and other project specifics. Once a facility is secured, a shelter also helps U.S. and other foreign manufacturers with all the administrative responsibilities needed to launch production. These include HR and payroll, taxes and accounting, plus local and international trade compliance, among other duties.

The steady momentum of manufacturing in Mexico has piqued the interest of those wanting to expand or diversify their portfolios. Though there may be other areas that may have lower labor costs or lease rates, these need to be compared against the trade-offs to see if the option is worth it.

IVEMSA can help determine if manufacturing in Mexico is the best viable solution to align with your production goals. We’re here to answer your questions – contact us today.

Sources:
https://www.reuters.com/technology/foxconn-says-it-is-building-worlds-largest-manufacturing-facility-for-nvidias-2024-10-08/
https://www.bbvaresearch.com/en/publicaciones/mexico-mexico-is-now-the-largest-exporter-to-the-us/
https://www.bbvaresearch.com/en/publicaciones/mexico-mexicos-trade-is-more-concentrated-towards-the-united-states/
https://www.state.gov/new-partnership-with-mexico-to-explore-semiconductor-supply-chain-opportunities/