Answer to Question #30544 in Economics for nhatnguyen tran

Question

What reasons do executives provide for setting up manufacturing in Mexico?

Answer 1

For US-based companies, nearshore manufacturing in Mexico under a shelter services company has many advantages. Rather than shifting manufacturing to a distant location like China, by transitioning to manufacturing in Mexico, companies are realizing cost savings that make the NAFTA-member country competitive with China due to very affordable labor, while benefiting from Mexico’s closer proximity as well.
More and more American companies, large and small, are taking advantage of Mexican manufacturing, where close proximity, more similar culture and language, more manageable travel distance and time zones make nearshoring very attractive. Here are some of the advantages of manufacturing in Mexico:

• Closeness makes Mexico a desirable destination for just-in-time delivery into US markets, saving time and money on shipping costs in comparison to China or India.
• This same proximity also makes it possible to visit the Mexican manufacturing facility from the US in a single day – which would be impossible for an Asian location.
• The transportation and travel infrastructure is on par with other well-developed nations: the road and rail network between Mexico and US is first rate, allowing deliveries from the factory floor to major US markets within days, versus up to three months for goods shipped from Asia.
• Trade between US and Mexico is not subject to customs duties or tariffs or customs delays, generating more cost and time savings.
• The quality of engineering and technical education is vastly improved, and the Mexican government has indicated a commitment to education within technical and engineering disciplines. Since the end of 2006, the government has launched more than 70 institutions of higher education and has helped more than 30 existing institutions to expand their student enrollment. This is in response to a growing need for engineers and technicians in Mexico, a need the government is eager to meet.
• The Mexican economy has been growing at a rate of 4-5% per year recently, making it a bright spot during the ongoing global recession. This makes for a large and economically active population, comprised of a young workforce eager to work and participate in the growth.
• The US/Mexico border is nearly 2,000 miles long (nearly 3,200 km), making it the only spot on the globe where a developing nation and a developed nation meet.
• Mexico incurs no duty fees and enables companies to realize cost savings by complying with NAFTA rules of origin, which give greatest benefit to goods wholly produced in Mexico, Canada and the U.S.
• Since NAFTA was implemented in 1994, Mexico’s trade with US and Canada has nearly tripled. Mexico also has free-trade treaties with more than 50 countries around the world, including with the European Union’s 27 member states, Japan, and several countries in central America. More than 90% of Mexico’s trade is under free trade agreement.
• Mexico is the top destination in Latin America for major companies from the US and Latin America looking to do business.
• Mexico has a long history of transparent, democratic values and respect of the rule of law, environmental regulations, patents, trademarks, intellectual property and labor laws. By contrast, counterfeiting in Asia is notoriously widespread and authorities have shown inconsistency at best, disinterest at worst, about enforcing laws pertaining to counterfeiting and intellectual property.
• Mexico is an acknowledged pro-business country with established security and legal protection for foreign investors as a signator to Bilateral Investment Treaties with 28 countries.