Mexico continues to grow in popularity as an excellent location for low-cost nearshore manufacturing. In fact, many companies are moving operations from sites across the globe to benefit from the stable costs and easy accessibility to the U.S. that Mexico affords.
Before going all-in on nearshore manufacturing in Mexico, however, it’s important to explore potential sites and weigh the benefits and drawbacks of each. Mexico has several emerging industrial clusters that may not yet be on your company’s radar.
Manufacturing areas in Mexico
Most manufacturing in Mexico takes place along the northern border, which offers businesses specific pros and cons. A location along the northern border, such as Tijuana, does provide easy accessibility to the massive U.S. market. However, along with that perk comes higher wages and real estate costs.
As a result, many manufacturers focus on areas further south that provide a balance of cost-effectiveness and simple logistics. Many companies looking for offshore manufacturing success in Mexico find greater success and locations such as Monterrey, Saltillo, or Hermosillo, sitting 150 to 200 miles south of the U.S. border.
How to choose a manufacturing location in Mexico
Finding the right manufacturing site in Mexico will depend upon an organization’s unique needs, but every company should begin its search with a site selection analysis. At the highest level, this process may start by examining the six factors outlined below.
Accessibility is perhaps the most significant benefit of offshore manufacturing in Mexico. Therefore, it’s essential to ensure that your location provides the right balance of ease of access for importing and exporting goods to your target markets. Easy access to the U.S. market is a chief reason that cities along the border have become crowded with maquiladoras. Many manufacturers have found greater success by moving further south to a location like Hermosillo.
Hermosillo sits just 181 miles south of the U.S. border on Highway 15. However, it also provides flexibility in transporting materials. In addition to rail travel, Hermosillo is also home to the Hermosillo International Airport and is a quick drive to the nearby deep-sea port of Guaymas. Given the challenges facing movement in the supply chain today, this level of versatility is proving critical.
Moreover, improvements are being made to improve Mexico’s digital connectivity with the world. Mexican telecom company Telcel has begun a nationwide rollout of its 5G network to boost global connectivity. The rollout has already started in 18 of the largest cities, including Hermosillo, before spreading to the rest of the country.
Infrastructure availability is not equal across Mexico, so it is important to identify infrastructure needs during your site investigation. More rural greenfield developments may carry an added expense of developing infrastructure to meet industrial demands. That’s why many manufacturers opt to locate in an industrial park that can leverage economies of scale to provide excellent service.
Given the increase in offshore manufacturing in Mexico, new industrial parks continue to open to meet demand. Properties like the park in Rio Sonora in Hermosillo can ensure abundant access to water, reliable power with 60 MVA capacity, and ample natural gas supply.
Mexico is home to a number of industrial clusters, locations with decades of experience in manufacturing expertise. However, this can, in some cases, lead to tougher competition in attracting the available workforce. Companies should begin their site selection analysis with insight into local wages and expected benefits for manufacturing and typical turnover rates.
Companies should also weigh their need for skilled labor against training and educational opportunities available locally. While it is possible to find laborers well versed in working for maquiladoras in many parts of Mexico, many states have also invested heavily in educational centers that support manufacturers in upskilling their employees. For example, several of the universities within Hermosillo have structured educational programs to fit the local industry’s technical training needs. Meanwhile, nearby Guaymas has developed the Advanced Technology Training Center to allow workers hands-on training with equipment such as CNC machinery.
- Supply chain partners
Mexico is well known as an automotive manufacturing powerhouse. However, its technical expertise has grown over the years. Companies looking to offshore manufacture in Mexico today are producing automotive and aerospace components, electronics, and medical devices, among many other goods. Manufacturers may find they can leverage their location near a certain industrial cluster to build up supplier relationships with nearby partners.
For example, automotive component suppliers often opt to locate in Hermosillo, home to a Ford Stamping and Assembly plant. Others find this location attractive due to the influx of aerospace enterprise moving into Hermosillo to support the massive demand for aircraft components in nearby Arizona. And electronics manufacturers find the location enticing as an opportunity to serve both of these industries as well as a wealth of other opportunities.
Federal and state governments have taken a number of steps to appeal to foreign direct investors and position Mexico as a business-friendly location. In addition to the numerous free trade agreements that connect Mexico with the world, many companies that opt for offshore manufacturing in Mexico benefit from local tax incentives. However, knowing where to look and what to expect requires some insight into local conditions. This is an area where a site selection advisor can be a worthwhile investment.
- Future flexibility
Many areas in Mexico are seeing growth in foreign direct investment for a wide range of reasons. The USMCA demands for greater North American content in automobiles and other products have enticed many companies to shift their offshore manufacturing to Mexico from other low-cost countries. In addition, Mexican has proven more stable than many other options in terms of getting products to the U.S. and in providing a cost-effective workforce. As Mexico continues to invest in growing its infrastructure and construction keeps pace with demand for industrial real estate, manufacturers will find suitable options for their sites.
Cities like Hermosillo are also seeking to balance this industrial growth with a sustainable future. As Guadalupe Peñúñuri, head of Hermosillo municipal planning has commented, “The idea is to rehabilitate the center, and come to see it as not just a place for business, but as a place to live, a place to work, a place for innovation and creativity.”
Think Hermosillo might be the right place for your business to thrive? Take the next step with a more detailed site selection analysis. Contact Tetakawi today.