Mexico and the Coastal Zone; A $200 Billion Blow | Article by David Ordaz

David Ordaz

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In the midst of electoral scenarios and geopolitical conflicts at the global level, Mexico is becoming a key player in business relocationIts proximity to the world’s largest consumer market and its competitive capabilities determine its potential to attract investment, provided that elements such as reduction in operating costs, production, improvement of infrastructure, water supply, energy and others are consolidated.

Although our main competitors are Asian countries such as China, Taiwan, Vietnam, Singapore, Thailand, India, Malaysia And Indonesia It is companies from these countries that consider our country as an excellent option for investment, but there are still several unresolved issues that need to be resolved.

According to the study’Mexico at a Crossroads: Are Niche Shoring Opportunities Being Missed?‘, prepared by a consulting firm Bain and Companyshows that Mexico could lose more than 200 billion dollars Unless it addresses the infrastructure, services and security issues, and even the bottlenecks that are blocking the full potential of nicheshoring, it will fail to reach more 500,000 million dollars additional export.

The report explains that Mexico has a strong manufacturing industrywith a stable growth of exports between 4% and 5% per year, predominant in the transport sector, mechanical and electrical devices and machines, and by capitalizing on these investments, the growth of exports in this sector can be accelerated by at least 2% in the next few years, moving to a level of 6 to 7%, which is equivalent to 8 billion dollars additional annual amounts to the volume that the industry normally produces.

In addition, our country has a competitive advantage in terms of costs compared to Chinathe largest market in coastal installation on a global scale, resulting in significant changes in companies’ import trends. Americans And European in the automotive sector, household appliances, cars, furniture, plastics and others.

The consulting firm’s analysis found that if Mexico maintains its current growth rate and partially addresses key bottlenecks, export value may increase more than 300,000 million dollarswill increase from $593,000 million in 2023 to $900,000 million in 2030.

“The challenges faced by both companies already operating in Mexico and those looking to do so in the short or medium term are not minor. “They all require an ambitious strategy and a clear route to ensure that the potential for supply chain movement is not reduced,” he said. Jordi Chiuropartner Bain and Company Mexico.

Some of the industries with the greatest niche shoring potential in Mexico are: doctors And electromechanical, technique industrialwhich in each category accounted for about 17% of US imports in 2020.

«Monterey, Tijuana And Queretaro These are some of the cities that, thanks to their already consolidated industrial environment, are attractive locations for international companies that could transfer some of their production processes to Mexico. In addition to the United States and China, companies from Germany, Canada, Denmark And France They also began moving operations to Mexico,” the consulting firm said.

For Jordi Churo and Armando Flores there is four factors what favors Mexico: time zones According to the United States, the costs of transport, T-MEK and one experimental manufacturing industry which has high quality standards and a highly skilled workforce.

Gross value added manufacturing industry in Mexico is approximately 221,000 million dollars and contributes 18% of national GDP and according to the National Council of Export Manufacturing Industries (INDEX), this sector contributes to 60% of export and creates more than 3.3 million direct jobs and more than 6 million indirect jobs through IMMEX companies.

OBSTACLES

Supply. Among the most important challenges to unlock the full potential of niche shoring is the consolidation of sustainable industry ecosystems. One of the first things companies evaluate before relocating their production centers is whether there is a consolidated supplier ecosystem. A strategy to this end could be to encourage the development of industrial clusters and introduce more extensive tax incentives.

InfrastructureDespite its strategic location, the country’s logistics and transport infrastructure lags behind other countries and has even deteriorated since 2018. It is therefore imperative to prioritize its modernization in areas such as roads, ports, railways and customs, which require significant investment to address the potential increase in manufacturing activity, especially in the northern states.

Electricity and water supply. Electricity supply, with a focus on energy transition, and water supply are also important. In particular, Mexico has seen limited growth in generating capacity in recent years, especially from renewable sources, as well as expansion of the transmission network.

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Specialized talent. Companies looking to establish themselves in Mexico, especially in fast-growing sectors such as automotive, electrical equipment and mechanical engineering, are leaning toward advanced manufacturing. This trend requires personnel with advanced skills such as technicians and engineers.

CompetitivenessThe country must significantly increase productivity and reduce costs, as well as accelerate digitalization and automation of processes through technology and artificial intelligence, establishing itself as a major competitor in the market.

Safety. Improving security conditions is necessary to make Mexico a more attractive country for niche shoring, as it represents a major barrier to attracting foreign investment and high-level talent. Moreover, the lack of security affects costs and logistical reliability, so short-term solutions are needed to prevent further concentration of investment only on the current poles.

The study concludes by explaining that Mexico should strive to actions For combating crime rates to ensure growth FDIreduce associated costs and promote the attraction of highly skilled labor in order to overcome the barrier and achieve capitalization coastal installation.

Check it out full research: “Mexico at a Crossroads: Is Coastal Development Opportunity Missed?”