Sparks fly as laser cuts a piece of metal at a factory in Mexico, which is preparing for a wave of foreign investment thanks to rising tensions between the United States and the United States. China.
Geopolitical frictions and supply chain issues during the Covid pandemic led more companies to move their manufacturing operations geographically closer to the world’s largest economy.
Last year, Mexico replaced China as the main source of US imports, reflecting a trend known as “nearshoring”, the transfer of a part of the production to another destination, close to the final market.
Mexico lives a “boom” of this phenomenon, according to Humberto Martínez, president of the National Council of the Maquiladora and Export Manufacturing Industry (INDEX), who these days is holding meetings with foreign investors, some from Asia and the Middle East.
His organization expects that this year some US$9 billion will be invested from abroad in Mexico’s export manufacturing industry, which would imply, he assures, “a new world economic order”.
Less expensive labor, tax incentives and the free trade agreement between North American countries, in force since 1994 and renewed in 2020 to become the USMCA, have been attracting companies south of the US border for years.
The current fear of aCold War” between the United States and China has made Mexico, which is expected to elect its first female president in the June 2 elections, even more attractive.
The two main candidates, the leftist Claudia Sheinbaum and the center-right opposition Xóchitl Gálvez, promote the benefits of “nearshoring”.
“Privileged site”
The industrial north of Mexico is the cradle of the “maquiladoras”: factories that for decades have processed and assembled imported materials and components, and then shipped them back to the United States.
“We are in a privileged location nationwide due to the proximity we have to the border to be able to export to the main market, which is the United States, the largest market in the world.”said Juan José Ochoa, general director of Aztec Technologies, in Monterrey.
“There are political aspects, there are economic aspects that motivated the migration of a lot of productive capacity from the United States to Asia more than a decade ago. And finally, for reasons of international relations, much of that capacity is returning to America.”he added.
Nearby, workers in hard hats and protective glasses use laser cutting machines and other high-tech equipment to process metal for the company’s customers, including U.S. agricultural machinery makers John Deere and aerospace makers Honeywell.
“Now, there are many companies that are establishing themselves, yes, and we know this because many of them knock on the door so that we can supply them with parts“Ochoa explained.
Foreign direct investment in Mexico reached a record of more than US$36 billion in 2023, 38% of which came from the United States, according to the Ministry of Economy.
Juan Pablo García, head of CAINTRA, a business organization in Nuevo León that represents several thousand companies, assures that talking about a boom in “nearshoring” is not an exaggeration.
“It is definitely a reality. Additional investments from different countries are arriving in Nuevo León, which is our area of influence.”, he assured.
From Tesla to Lego
Companies such as the Taiwanese titans Foxconn, the Danish Lego and the American Mattel, maker of Barbie dolls, have already announced expansions related to the “nearshoring” in Mexico.
Monterrey is already surrounded by a vast expanse of industrial estates, and the city center is home to glass-fronted office blocks and luxury executive hotels.
Electric car maker Tesla announced last year the construction of a new factory on land near the city, although its construction has been delayed.
It is likely that the “nearshoring“be a gradual process”that will take many years”said Elijah Oliveros-Rosen, chief emerging markets economist at S&P Global Ratings.
The expansion of industrial parks has been the majority of the activity seen so far, more than the relocation of large manufacturing companies to Mexico, he added.
“That hasn’t had a boom“, he told AFP.
Firms looking to move to Mexico face challenges such as insecurity, water shortages, labor requirements and the need for a constant supply of energy, particularly from renewable sources, according to Oliveros-Rosen.
Residents of Monterrey suffered water rationing for weeks in 2022.
Thinking about the future at his factory, Ochoa also sees many challenges, including the need for development in infrastructure and staff training.
“At the end of the day, if a logger arrives in a large forest where there are many trees and begins to consume the resources of that forest, if it does not carry out a process of sustainability and long-term development (…) well, in the end it is not possible. you will be able to restore or replant what you need for the coming decades”, he weighed.
Source: Gestion
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