Mexico is fast becoming an attractive destination for many foreign direct investment firms.
There are many advantages U.S. firms can have by setting up business in Mexico. Firms can become more competitive by leveraging Mexico’s expertise in technological advancements, low tax structure, cheaper and highly skilled labor, cheaper raw materials cost, as well as the free trade agreement.
The Business Environment in Mexico
The Mexican IMMEX Program – Manufacturing, Maquila, and Export Services Industrial Program – was established formally by the Mexican government in 2006, and has seen various industry sectors benefiting from the foreign direct investment into the country.
This program has allowed for Mexican manufacturers to be wholly owned by a foreign business, and – subject to some restrictions – allows exports back to those countries to be free of duty or tax. This in turn benefits Mexico by boosting the employment rate in previously impoverished areas, and brings money back into these communities.
A Look At The Most Promising Industries In Mexico
Nearshoring has become a big topic for America’s businesses in recent years. In a bid to lower their manufacturing costs, and satisfy the needs of their consumers, all while sidestepping awkward relations with other, more traditional manufacturing bases, American businesses are increasingly turning towards Mexico as their manufacturing base.
Manufacturing is by far one of the most promising sectors in Mexico. The labor shortage and rising costs in the US means that Mexico’s young, skilled and educated workforce is becoming increasingly attractive.
The following are some of the most successful industries that have operated under the IMMEX Program:
- Aerospace, Aviation & Automotive
The Aerospace, Aviation, and Automotive industries have always been a major focus for Mexico as a key strategic investment. While these industries have been severely impacted by the COVID-19 pandemic, the resumption of travel and global remission of the pandemic would ensure the sector’s viability in the longer term.
Evidently, Mexico has improved on its manufacturing capabilities from manufacturing small parts to frames and assembly lines. Some of the bigger multinational corporations including Rolls-Royce and General Electric’s Safran Group have seen great business successes in operating their manufacturing lines in Mexico to date.
- Medically-Related Devices And Electronic Components
Among the world’s greatest medical device producers, Kimberly Clark, Johnson & Johnson, Stryker, Boston Scientific, and many others have built up their manufacturing capabilities in Mexico. The ideal locations of facilities along the borders to America have allowed for a quick turnaround time for order fulfillment for the US market.
The well-trained employees, established infrastructure, and prime location relative to the US market have seen the rapid development of the sector, with Mexico having quickly become the leading supplier of medical devices to the United States. By moving production to Mexico, firms can easily save an average of 20% in their operating costs in comparison to keeping it in the US.
- Consumers Goods Manufacturing
Unilever, Procter & Gamble, Nike, and L’oreal are some of the many top fast-moving consumer goods (FMCG) brands maintaining production lines in Mexico. These key iconic brands have seen huge successes and demands for their goods globally over the decades in which they have operated in Mexico.
At this stage, Mexican production has decades-old roots in the sector, and Mexican factories are very good at what they do. These manufacturing industries are known not only for their cost-effectiveness but also for the high quality output that has supported their clients in growing and maintaining their status as well-respected global brands.
Things To Consider Before Starting A Business In Mexico
To effectively leverage the IMMEX program, companies should evaluate their operation to make sure that they reach the requirements. Landed cost business analysis, inventory control tracker within the stipulated time frame, proper goods classification, origins certifications, Non-Tariffs regulations, customs brokers, and audit procedures are some of the key requirements that would need to be carefully put in place to set the business up for success.
In short, businesses should make sure that setting up a factory in Mexico makes sense, and that they qualify for the program.
Why Now Is A Good Time To Start A Business In Mexico
Mexico is a safe haven for American production – the government has placed an enormous amount of importance on and takes great pains to nurture foreign direct investment in its manufacturing sector.
With its programs offering tax benefits, strong IP laws, close proximity to the US, and a young, highly skilled labor force – not to mention the free trade agreement – it has never been a better time to start a business in Mexico.