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Mexico continues to create new opportunities for plastics suppliers

February 9, 2017 Article 2 min read
Mexico continues to create new opportunities for plastics suppliers.

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.

 Graph describing the change in North American vehicle production from 2000-2020

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.

 Bar graph describing the change in OEM investments in Mexico from 2013 to 2020

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.

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