Amid the rapidly changing landscape of global business, emphasized by factors like evolving trade relations, pandemic disruptions, travel limitations, labor shortages, and escalating costs, enterprises are actively seeking durable solutions that promise business continuity, cost efficiency, and robust supply chain resilience. Mexico has emerged as a viable solution to these challenges and gives various reasons why a company should expand their businesses to the neighbor country of the largest market – the United States.

American Industries recently hosted a webinar on August 26, focusing on the compelling advantages of establishing operations in Mexico and exploring various business models suitable for operations within the country.

The webinar delved into five pivotal factors that underpin Mexico's extraordinary stability and growth, making it an attractive destination for companies considering an expansion to Mexico:.

• Firstly, Mexico's strategic geographical location facilitates efficient logistics and transportation. Compared to China, companies can significantly enhance supply chain efficiency, shipping goods 80% faster at a 75% cost reduction. The proximity to the US border enables swift access to US markets, and the alignment of time zones contributes to enhanced quality control and efficient employee training.

• Secondly, Time-zone alignment: Mexico shares a favorable time zone with the United States, enabling real-time communication and collaboration between teams. In addition Mexicans culture is similar to the one of the United States and possess a deep understanding of US consumer preferences, enabling them to provide personalized service and relate to customer needs effectively.

• Thirdly, Mexico's robust network of trade relations simplifies access to regional markets. The country boasts 14 free trade agreements with over 50 nations, representing 60% of the world's GDP. This extensive network streamlines business operations and fosters collaboration.

Other benefits of expanding your business to Mexico

Furthermore, Mexico's manufacturing proficiency is fortified by decades of experience, nurturing a mature ecosystem of original equipment manufacturers (OEMs), suppliers, and integrated supply chains. This foundation empowers Mexico to export high-value products and services.

Mexico's labor force presents a competitive edge, featuring a large and skilled population with expertise across various industries. With a population exceeding 126 million and a median age of 29, the nation houses over 75 million economically active individuals, a figure projected to grow beyond 80 million by 2040.

Mexican manufacturing workers also earn a wage like those in China or approximately 20% the cost of a U.S. manufacturing employee. Given labor scarcity in the U.S. and other developed nations, this large skilled workforce represents a sizable advantage for Mexico.

Moreover, the presence of English-speaking managers and employees coupled with an emphasis on engineering and technology-related education ensures a robust and productive workforce. The webinar also explored different business models for entering the Mexican market, including joint ventures, acquisitions, outsourcing, and shelter programs, each offering distinct levels of risk, liabilities, and costs. The latter, often a shelter program, emerges as a favored option for international companies.

An attractive expansion for various industries

The Latin American startup scenario presents a dynamic picture of expansion and growth. A recent study conducted by Endeavor, General Atlantic, Mastercard, and Google reveals that Mexico is emerging as the prime destination for startups looking to expand internationally within the region.

Out of the 271 companies surveyed, Mexico attracted the most attention, with 145 companies choosing it as their expansion target. This underscores Mexico's significance as a strategic hub for startups aiming to tap into broader markets.

A standout feature of Mexico's appeal is its conducive environment for venture capital investments. The study highlights a surge in venture capital inflow, with 86 investments totaling $3.77 billion in 2021. While Mexico's venture capital growth is noteworthy, there remains room for advancement, considering the figures in comparison to other regional players. Despite this, Mexico's access to capital, coupled with its proximity to the US market, presents an enticing proposition for startups eyeing international expansion.

Key sectors driving this expansion wave include fintech, logistics, and e-commerce. However, a diverse array of industries, from food tech to real estate tech, is also making its mark. Among the challenges, hiring local talent emerges as a significant hurdle, followed closely by cultural adaptation and market alignment. Mexico's advantageous position shines here as well, with the study reporting that 41% of companies prefer Mexico for talent recruitment. Overall, Mexico's strategic location, robust venture capital landscape, and burgeoning sectors position it as a frontrunner for startups seeking a successful expansion trajectory in Latin America

Which industries expand to Mexico?

Mexico's manufacturing landscape has surpassed its automotive roots, embracing the production of high-value goods with increased sophistication. The nation's adeptness has been channeled into advanced industries such as aerospace and technology, unleashing a plethora of investment possibilities.

This transformation is particularly evident in the aerospace sector, where Mexico's exponential growth mirrors global trends. Noteworthy aerospace startups have attracted a staggering $1 billion investment in a single year, reflecting the sector's vibrancy. Mexico has emerged as a leader in aerospace part production, contributing to consistent annual export growth of 15% over the past decade.

With its deep-rooted, robust, and multifaceted manufacturing sector, Mexico is well-positioned to welcome increased investment. This buoyant outlook has positioned Mexico as a key economic player in Latin America, offering an alluring investment proposition. Anchored in political stability, growth potential, access to major markets, comprehensive free trade agreements, a skilled workforce, and consistent industrial expansion, Mexico's manufacturing sector beckons forward-looking investors to explore its promising prospects.

High-tech firm expand to Mexico

Not only mass assembly line work is experiencing an exponential growth in Mexico but also new high-tech firms expand to Mexico. Indeed, the country has seized prominence in advanced technology manufacturing, assuming the role of the world's sixth-largest producer of technology-based goods and the third-largest producer of computers. These trends present investors with a compelling chance to tap into Mexico's burgeoning technology-driven manufacturing ecosystem.

The trajectory of trade appears favorable under the aegis of the United States–Mexico–Canada Agreement (USMCA), igniting optimism among investors in Mexico's manufacturing domain. The implementation of USMCA stands poised to amplify the country's productive sector, rendering Mexico an enticing hub for substantial foreign direct investment.

Promising growth in the Mexican Economy

Credit Suisse's "Mexico Nearshoring Tracker" report, in its fourth edition, sheds light on the trends and data surrounding the influx of companies establishing operations in Mexico through nearshoring. Despite a 46% decline in foreign direct investment (FDI) linked to offshoring activities, Mexico remains a promising destination for long-term growth across industries. The reduction is primarily attributed to corporate shifts, yet the report emphasizes that this setback doesn't eclipse Mexico's future potential. New investments are on the rise, growing by 25% year over year, indicating a positive trajectory.

Key findings from the study reveal that November witnessed the announcement of five manufacturing installations, with a combined investment of $1.1 billion. While the automotive sector dominates new investments (78% of the disclosed amount), Electronics and other industries are also expanding their presence. BMW's forthcoming electric vehicle plant in San Luis Potosí, set to debut officially in February 2023, stands as a notable highlight. The report also underscores the allure of Mexico to a diverse range of international companies, as Canadian, Chinese, Korean, and Japanese enterprises have embraced the nation for expansion. Despite a slight decline in total FDI, the report maintains a positive outlook, emphasizing the continued potential for growth and stability in Mexico's industrial landscape.

The economic prospects for Mexico in 2023 are promising, with CANACINTRA underscoring the pivotal role of infrastructure investment and legal certainty in attracting capital inflows and harnessing the potential of nearshoring initiatives. CANACINTRA, the National Chamber of the Transformation Industry, forecasts a potential 2.8% expansion in Mexico's economy by the close of 2023, fueled by the strategic relocation of enterprises. Impressively, the nation secured 50% of its foreign direct investment within the initial quarter, setting a favorable trajectory for economic advancement.

Nonetheless, Juan Manuel Chaparro, Vice President of Industrial Development for the Metal-Mechanical Sector at CANACINTRA, articulates the imperative of bolstering infrastructure, encompassing pipelines, terminals, transmission lines, and gas conduits.

This strategic enhancement is designed to ensure the efficient provisioning of natural gas, electricity, water, and essential utilities to diverse geographical areas. To cultivate a robust economic resurgence, governments at all tiers must cultivate an environment of investor assurance, legal predictability, and adherence to the rule of law. These foundational elements serve as pivotal requisites for fortifying the existing momentum in nearshoring activities and engendering a more substantial influx of investments.

Highlighting the economic landscape, the Ministry of Economy indicates that Mexico's Foreign Direct Investment attained a notable $18.636 billion during the initial quarter of 2023, marking an impressive 48% escalation from analogous figures in 2022.

Notably, these investments have gravitated towards the central and northern regions, with notable concentrations in high-demand markets such as Mexico City and Nuevo León. In alignment with the government's strategic approach to diversify investment streams and capitalize on nearshoring dynamics, business leaders accentuate the paramount importance of enhancing infrastructure and fostering incentives. These strategic measures are imperative to ensure Mexico's positioning as a compelling and competitive global investment destination.

How to start to expand your business to Mexico?

Prior of a business expansion to Mexico, a clear understanding of your sector within the local market is vital. Moreover, navigating Mexico's intricate labor laws requires either comprehensive research or collaboration with knowledgeable local partners. The ever-changing regulations underline the necessity of staying current.

We from Mexecution LLC www.mexecution.com are dedicated to ensure a successful expansion to Mexico. Our company with physical presence in Mexico is facilitating successful market entries, connecting you with ideal partners and accompany you in the site selection process. Leverage our expertise to navigate the complexities of the Mexican business landscape and ensure a smooth entry into this vibrant market. Collaborate with Mexecution and unlock new avenues of growth for your business in Mexico. Get started now and pave the way for a triumphant expansion journey with a reliable partner by your side.

Bibliografía

Cluster Industrial. (January de 2023). Llegan 25% más empresas canadienses y asiáticas a México por nearshoring. Obtenido de Cluster Industrial: https://www.clusterindustrial.com.mx/noticia/5738/llegan-25-mas-empresas-canadienses-y-asiaticas-a-mexico-por-nearshoring

González, L. (July de 2023). Canacintra pronostica crecimiento económico del 2.8% en 2023 por nearshoring. Obtenido de El Economista: https://www.eleconomista.com.mx/empresas/Canacintra-pronostica-crecimiento-economico-del-2.8-en-2023-por-nearshoring-20230720-0050.html

Riquelme, R. (April de 2022). México es el país más atractivo para startups en América Latina. Obtenido de El Economista: https://www.eleconomista.com.mx/tecnologia/Mexico-es-el-pais-mas-atractivo-para-la-expansion-de-startups-en-America-Latina-20220408-0061.html

Rivera, I. (n.d.). Top five reasons to expand operations to Mexico.Obtenido de American Industries: https://www.americanindustriesgroup.com/blog/top-five-reasons-expand-operations-mexico/

TECMA COMMUNICATIONS. (September de 2019). Why you should consider investing in the Mexican manufacturing industry.Obtenido de Made In Mexico: https://www.madeinmexicoinc.com/mexican-manufacturing/