Mexico: Getting its Economic Strength Act Together

02 Sep, 2014

By David Hodes

There have been clear goals in Mexico to become the place for more cost efficient manufacturing especially in labor for such machining-intense industries as automotive and aerospace.

But there are still some issues that lurk in the minds of every business person considering moving there: security, customs and shipping questions, and the quality of the workforce.

All of that is changing for a country that is getting more involved with all levels of manufacturing coming mostly from the United States. The growing trust in the value of what the country can provide has resulted in the addition of more Tier II and Tier III auto parts suppliers as the United States and other countries see what some of the stronger industrial developers in Mexico have to offer.

This is all good news attributed in part to the North American Free Trade Agreement (NAFTA). According to The Economist, U.S. trade with Mexico increased by 506 percent between 1994, when NAFTA began, and 2012. NAFTA membership has helped fix the country’s domestic political commitment to open markets, and provided a template for the country’s 14 free trade agreements, making the country more stable and prosperous for business developers.

One of those developers is Amistad Industrial Developers, a family-owned business in Ciudad Acuna, Coahuila, across from Del Rio, Texas. Amistad manages sites in the central and northern region of the country where much of the industrial activity in the country is going on.

Amistad Real Estate President Marco Ramon says Coahuila is a very industrialized state, and that, as Amistad moved their business development services into different areas like the central part of Mexico, they brought three developments with them.

One was Mazda bringing in a new assembly plant in the Salamanca area in February. Another is Honda, on a 60,000-square-foot site in a suburb of Celaya, Guanajuato, about 210 miles east of Honda’s two existing plants in El Salto, Jalisco, which build automobiles, motorcycles and auto parts. “All of that is within a 150 kilometer radius,” Ramon says.

Eduardo Saavedra, executive vice president of business development for The Offshore Group, a provider of Mexican outsourcing solutions from their base in Tucson, Ariz., says that cost is one thing, but there is also the population densities that are fairly high in Central Mexico, and that is the appeal. “Being close to the border for these OEMs is no longer necessary,” he says. “What is necessary is the sustainability of labor. And then what happens with a company like BMW (in June, the company announced a billion-dollar investment to build a new plant in San Luis Potosi) is that they call out to their Tier I suppliers and then they set up near the OEMs. And that creates opportunities for that region.”

Down to Business
*In an economic rankings list of 32 cities by the World Bank Group for five categories of doing business in Mexico that include the ease of doing business, starting a business and dealing with construction permits, Colima (in the center west of the country) came in first, Aguascalientes (in the north central part of the country) was second, and Celaya (in the south central part of the country) was third.

*A World Bank Group study reports that the regulatory business environment in Mexico is converging towards the average performance of high income Organisation for Economic Cooperation and Development economies, but there is still a wide performance gap between Mexican states.

*In 2013, the Mexican distribution utility made getting electricity easier by streamlining procedures, offering training opportunities to private contractors, using a geographic information system to map the electricity distribution network and increasing the stock of materials.

Industries and Innovations
Auto manufacturing is king in this country.

According to statistics from the supply chain research company Armstrong & Associates Inc., there are 25 automotive assembly plants (OEMs) spread out from Mexico City north. Over 1,000 Tier I and Tier II suppliers are now located in Mexico. More than 2 million automobiles and light trucks were expected to be exported from Mexico in 2012.

Ramon says that, in addition to automotive, Amistad is seeing a nice mix of industries, especially with air conditioning manufacturing moving into the area represented by companies such as Nordyne, a subsidiary of Nortek, Inc., based out of Providence, R.I. “That’s a recent development,” he says, adding that they had a ribbon cutting ceremony in early July for the $40 million manufacturing space in Saltillo.

HVAC manufacturer Lennox continues to expand in the Saltillo area, with their first facility going up in 2008 and the recent completion of a 350,000-square-foot expansion. “They are bringing in a lot of suppliers to that area,” Ramon says. “So we have not only automotive but we are seeing more electronics industries and air conditioning and even La-Z-Boy.”

As it is in the United States, wherever you see automotive development you invariably see aerospace development. Alcoa Fastening Systems (AFS), makers of fluid products, installation tools and nuts, is expanding their facility in Acuna.

Talent and Education
Saavedra says that the retiring workforce in manufacturing, a serious issue that is plaguing the United States has created an opportunity in Mexico. He tells about a manufacturer from Connecticut that came to Mexico mostly because of the available machinist labor. “It was not so much the cost reduction but it was because the youngest machinist they had on their staff was 55 years old,” he says. “And worse, when they put out applications to fill positions in machining for the younger workforce, no one was showing up to apply.”

The training programs for machinists can take months to get people up to speed on their skillsets, Saavedra says. “Some companies don’t have that long to become productive,” Saavedra says. But he says their clients have weathered that obstacle. “They are reaping the benefits today because they are able to get skilled workers at a definitely lower cost than they would have in other parts of the world. And that is because in Mexico, they get a loyal worker for many reasons, some cultural.”

Mexico is training through their learning institutions as more of a work study program, like an apprenticeship program, he says, so there is no lag time between the six months it takes to train a machinist and the time that machinist begins making money.

There are plenty of logistics companies in Mexico and the United States, Saavedra says. Mexico’s $68 billion trucking industry is led by 10 companies with revenues from $90 million to $220 million. Major United States and logistics companies like DHL/Exel, Werner and Ryder do warehousing, transportation management and trucking in the country.

Kansas City Southern and Ferromex (UPS) are the major railroads.

“But there are not as many expert logistics companies that deal with cross-border freight,” he says. “And I am not talking about just crossing the border with a box or a truck. But offering door-to-door freight to, say New Jersey, and making the whole Mexican border crossing transportation piece seamless to a U.S. company, because that is where it gets a little tricky,” he says. “Just understanding the Mexican customs requirements.”

Outdoors and Recreation

Between the towns of Cabo San Lucas and San Jose del Cabo, Melia Cabo Real Beach and Golf Resort is the largest beach retreat in Los Cabos, with more than 300 rooms and one of the largest hotel pools in Mexico. The area features two outstanding golf courses: El Dorado, designed by Jack Nicklaus, and Cabo Real, designed by Robert Trent Jones, both offering beautiful views of the Pacific Ocean.

Mexico is a beautiful country with generous people, ancient cultural attractions and popular resorts like Cabo San Lucas, Puerto Vallarta, Cozumel and more.

Life is simple for many residents of the cities and towns that make up the country that has struggled to find its footing as an economic power — yet continues to push forward a new agenda of better trade with the U.S., Canada and Asia.

There is also a lingering sense of danger fueled by drug wars in some towns along the northern border that the country’s leadership has addressed. And the hope is, especially among the businesses that serve those regions; the cartels will eventually fade away and take that danger with them to allow more confidence for the growth of investments that have begun surging into the country this year.

Ramon believes Amistad and the industries they serve moving even further south over the next few years. “I think that companies will continue to seek lower cost alternatives,” he says. “And I think that there are still a lot of states here available for investment that have not been tapped.”

Saavedra says that, as far as security is concerned, those pockets of towns and cities along the border where there are problems move on after a number of months. “They go to another place and then they quiet down and sometimes go away,” he says. “But companies will stay away from certain areas — period.”

Saavedra says that he doesn’t believe that businesses are as concerned about the issue as when the average American turns on their TVs and spouses ask why they would be doing business in Mexico. “I see trucks and military here but I don’t feel unsafe,” he says.

More Info

Amistad Industrial Developers

The Offshore Group

Illustration by sheelamohan at Free Digital

David Hodes

David Hodes is a freelance writer living in Washington, D.C. He can be reached at

More Posts