We continue to see growth in end markets such as transportation, electronics, medical
device and equipment, construction and agriculture, and appliance as OEMs in these
markets invest in new manufacturing facilities in Mexico. The long-term impact on plastics
processors located in the U.S. or Canada (but not in Mexico) is still unfolding. So far,
this does not appear to be an insurmountable threat to plastics processors as OEMs in
several industries continue to operate facilities in the U.S. and Canada who value having
suppliers within a reasonable distance to their facilities. Similarly, for plastics processors
in Mexico, we mostly see them supplying their growing number of customers’ facilities in
Mexico with only a limited amount of plastics being produced in Mexico for immediate
exportation by the processor.
— Ted Morgan, Plante Moran plastics practice co-leader
What's driving OEMS to Mexico
- Improved workforce
Government-sponsored workforce development programs to improve skills relevant to manufacturing.
- Stabilized energy costs
Energy reform policies have increased the ease of developing needed infrastructure, stabilizing and reducing costs.
- Competitive state incentives
Mexican states offer a variety of economic and tax incentives for companies making long-term investments in Mexico (and creating industrial jobs).
- Favorable export agreements
The Mexican government has negotiated free trade agreements with 42 countries, cultivating an environment that encourages exports and sets the stage for significant growth outside of North America.
Industry case study: Automotive growth in Mexico
The North American auto industry is coming off a record year. In 2015, over 17.9 million vehicles were produced, and this number is expected to grow to over 19 million by 2021 according to IHS.
While the U.S. is projected to be the largest producer of vehicles in the foreseeable future, Mexico is projected to have the fastest growth over the 2010-2020 time period, with vehicle production being more than double that of Canada by 2019 with four million units.
Through 2020, total value of investments will exceed $20B among 12 different OEMs (primarily to Mexico’s Central region).
... with vehicle production being more than double than that of Canada by 2019 with four million units.
41,000 new jobs projected to be created for the region at OEM facilities.
Challenges in Mexico's growing market
While Mexico offers ample opportunity, there are several challenges that need to be addressed by those doing business there.
- Development of local management
Attracting and cultivating management for Mexican operations has been problematic as candidates possessing the necessary skillsets are in high demand.
- High turnover of hourly workers
Competitive demand for labor leads to attrition rates for companies not offering attractive wage and fringe benefit packages.
- Developing supply chain
Tier 2 and other downstream suppliers are slow to set up operations, causing many to import the required tooling, raw materials, and components for production.
- Financing difficulty
Obtaining capital is a large obstacle for smaller domestic and international manufacturers (mostly tier 2 and 3 suppliers) to fund Mexican operations.