The economic development of the state of Baja California’s leading city (Deitac) has reported record growth in industrial investment in Tijuana in 2021.  Its focus will be to promote emerging sector investment and direct its efforts in the California market in the coming year.

During the presentation of his Annual Activity Report, Lic. Carlos Jaramillo Silva, President of Economic and Industrial Development of Tijuana (Deitac), highlighted that this was a year of intense promotional work that has paid off in the form of new industrial investment in Tijuana.

He indicated that, during 2021, 3,604 profiled contacts were generated, 15 industrial Networking events, and three trade missions were attended.  Additionally, 110 seminars for potential investors were conducted. At the same time, more than 60 hours were spent with potential investors to showcase manufacturing capabilities and possible service solutions that could meet their requirements in Tijuana.

2021 was cited as one of the best years in terms of investment for Tijuana.  The city registered an industrial real estate absorption rate of almost 6 million square feet as of the month of September. In addition, it is expected that approximately 7.5 million square feet will be newly occupied as of the end of this year.  Despite the pandemic, which is still a factor in companies’ site selection activities, this total represents a historical figure for the city.

During the first quarter of the year, Jaramillo highlighted that there were seven new operations and ten expansions constituted additional industrial investment in Tijuana.  In total, this capital influx is equivalent to 11.7 million dollars; for the second quarter, there were four new operations and seven expansions, with a total investment registering 9.8 million dollars.

Tecma is one of the companies expanding in Tijuana in 2021

As an example of Detaic’s success full efforts in 2021, these first-quarter industrial investments in Tijuana stand out:

• Aluminios Baja California committed to establishing a presence in the Florido Industrial Park by acquiring a 460,000 square foot lot.
• Amazon generated a real estate absorption in Otay of 354,000 square feet of BTS-type building.
• West Modular committed to a presence in the Florido Industrial Park by executing a 220,000-square-foot rental transaction.
• The Tecma Group of Companies will have expanded its current industrial space inventory by an additional 195,000 square feet of stock located in the Libramiento submarket.

While, in the third quarter of 2021, added the leader of Deitac, four new operations, and 16 expansions were reported with an investment of 19.5 million dollars.  Expectations for the fourth quarter of 2020, which has yet to close, are very high.

“We have to generate industrial investment in Tijuana that is based on added value and not cost.  It must also be centered around developing available human resource talent, connectivity, and solutions integration from our regional supplier ecosystem. For instance, we are in a time of technological convergence that extends beyond the traditional manufacturing of medical devices.  For instance, we have moved to the age of life sciences.  Beyond an automotive and aerospace sector, we have now moved to an expanded mobility sector; and increasingly the electronics industry is moving towards a close integration with  Information Technologies as an important part of the processes of its manufacturing,” he said.

Carlos Jaramillo assured those in attendance that, at present, there is transversality between sectors. However, this condition is because they have converging components.  For this reason, Deitac seeks to attract higher value investments that utilize the most modern of manufacturing technologies.

“We have to aspire not to be just maquiladoras, but to be centers of excellence and innovation. Therefore, this will be the focal point of our efforts in 2022,” said the leader of the effort to promote industrial development in Tijuana.

In this sense, he emphasized the need to depend upon the development of local talent and other issues that affect the attraction of investment to the city.  In addition to this, robust energy must be directed towards industrial promotion, the continued strengthening of institutional relations, and the promotion of emerging sectors that will define industrial development in Tijuana in the near future and beyond.

Jaramillo Silva also anticipates that 2022 will also be a positive year for the attraction of industrial investment in Tijuana.  Since the promotion plan for the coming year will be similar to that of the current calendar year, the leader of Deitac conjectures that next year’s results will be similar to those achieved in 2021.

Mexican exports registered a 6% growth rate during the first half of this year.  This increase had its origins in manufactured products manufactured in the Mexican border region by companies that participate in the IMMEX program.  This activity has raised the interest of Asian firms in investing within Mexico’s national territory.  This is the case despite the economic policies of the current Mexican government. As a result, much of the focus has been on the possibility of establishing facilities for manufacturing in the Mexican border region with the United States.

According to a recent statement made by Amapola Grijalva, executive president of the Mexico-China Chamber of Commerce and Technology, a dozen Chinese companies have recently been actively investigating the possibility of manufacturing in the Mexican border region as in other areas of the country.

Chinese and Korean companies show interest in manufacturing in the Mexican border region

Jonathan Pomerantz, Investment Director of the industrial development firm MEOR, which focuses on building industrial real estate in Mexico, recently reported that Korean and Chinese businessmen are the most interested in injecting capital to develop this type of activity in the country.  The interest of Asian companies is mainly in border cities such as Tijuana and Ciudad Juarez.

“The dynamism of the northern Mexican border forces us to be thinking about continuing to support and create an infrastructure that will enable more companies can come.  In our region, we have many stakeholders for both the logistics and manufacturing sectors. For example, in Tijuana, we are quite close to signing with a tenant of Chinese origin that is interested in manufacturing in the Mexican border region,” he said.

In the framework of the laying of the first stone to build its new “Hubspark” in Apodaca, Nuevo Leon, which will have 18,500 square meters and will create up to 1,200 direct jobs and 2,200 indirect jobs, Pomerantz added that the industrial buildings that the company has in Tijuana, Ciudad Juárez and Monterrey are attracting the interest of Asian companies.  These companies are mainly from Korea and China and also originate from the United States in the logistics and manufacturing sector.

Manufacturing exports are up year to year

According to figures from the National Institute of Statistics and Geography (Inegi), last June, non-oil exports registered US $40 billion, which meant a growth of 26.1%, while manufacturing shipments totaled US $37.3 billion.  This figure represents an increase of 26.7% when compared to the same period of the previous year.

In the first half of this year, a greater dynamism of the industry and an accelerated manufacturing activity on the Mexican border have enabled other companies dedicated to investing in the real estate sector to achieve a rebound in their income.

Such is the case of Fibra Uno, the first Real Estate Investment Trust, which in the third quarter of the year raised its total income by 19.0% to 5,396 million Mexican pesos (US $269,159) and its net operating income by 27.8% to add a total of 4,356 million pesos (US $214,053).

The CEO of Fibra Uno, André El-Mann, clarified that the revenue increases indicate that company income is already above pre-crisis levels. In addition to this, he affirmed that the logistics sector in Mexico has been demonstrating a growing demand.  Because of this development, the company foresees that tenants will require additional space beyond what is currently available in the several logistics corridors located in Mexico. El-Mann also believes that continuing interest on the part of Asian companies in manufacturing in the Mexican border region will drive an increased need for both leased and build-to-suit industrial buildings.

In the first quarter of 2021, Meor real estate development fund began the construction of a complex that will spur industrial growth in Tijuana. The company has committed itself to an investment of over US $35 million.

Given the economic damage inflicted by Covid-19,  industrial growth in Tijuana is being consolidated to be the tip of the spear that will energize the economic reactivation of Mexico. Proof of this is the commitment that Meor has made to the border city when it began the construction of the new Hubs Tijuana industrial park in Baja California during the first quarter of the current year.

In a recent interview, Jonathan Pomerantz, Project Director at Meor, a development fund for real estate projects with a national presence that began in 2006, indicated that Hubs Tijuana is a speculative project.  It is being undertaken to meet the needs of the growing manufacturing and logistics sectors in the border city.  The company is betting on future steady industrial growth in Tijuana to make the project a success.

” At present, Tijuana is one of the Mexican cities with the least vacancies in Class A industrial buildings.  Because of this circumstance, the average rental price is the second-highest in the country after Mexico City,” said Pomerantz. Therefore, Meor sees the present as the optimal time to increase Tijuana’s available industrial space to accommodate future industrial growth and bring real-estate-rental costs in line with other competitive markets.

Regarding Hubs Tijuana, whose speculative buildings are expected to be finished by the fourth quarter of the current year, he explained that the project represents an investment of over US $35 million.  When everything has been set into motion,  the project will generate 1,600 direct and 4,800 indirect jobs.  Meor’s leadership has embarked on this effort due to its belief that Baja California and Tijuana are pillars for the Mexican national economy.”

This new Class A park will be situated on an 18-acre site.  It will house more than 430,556 square feet of construction and will have two main buildings. Each building will have two office centers and six warehouses of more than 5000 square feet each.  Moreover, the park will have exclusive lanes for transportation of cargo and personnel vehicles, green and recreational areas, and 3,700 KVAs of energy, among other features.

Jonathan Pomerantz added that Meor, with a portfolio of more than 360 projects in 15 years, plans to generate ten industrial projects that will total an investment of US $2.4 billion.  This figure represents 70% more in investment than in 2020. “More institutional investors have opened the door for the company due to the success that it has had in previous years.”

The ecosystem for industrial growth in Tijuana

Earlier this year, during the official start of the construction of Hubs Tijuana, Javier Camarena, general director of Meor, pointed out that it is “a dream to create a project of this magnitude this market to drive industrial growth in Tijuana.  The city ranks as one of the most important markets in the country.  Hub Tijuana is a world-class project that will provide manufacturers with first-rate facilities. As a result, it will succeed in attracting industrial investment and will contribute to growing the manufacturing ecosystem that exists in the city “.

“Because this is a consolidated market, industrial growth in Tijuana is the expression of the preferences of the largest national and foreign investors. This project contributes another element to this ecosystem that has had a significant effect on other economic sectors of the country.  Principally, the effects have been most predominant on  the real estate sector and industrial sectors.”

“The industrial real estate sector will surely be one of the pillars that will allow the economy to reactivate itself, attract investment, and generate good-paying jobs. Hubs Tijuana will be a strong driver of industrial growth in Tijuana,” asserts Camarena.

Singularity

For her part, Fernanda Mena, director of Promotion of the Secretary of Economic Development of Tijuana, assured that the city “stands out for its geographical location, social uniqueness, and economic dynamism. Over the years, it has become a key option for national and international companies that seek to invest and expand their operations.”

“Hubs Tijuana, located only 15 minutes from the Otay International border crossing, represents the confidence of investors to continue betting on the development of the region,” she said.

The economic development official explained that Tijuana currently has more than 75 parks and industrial zones that translate into approximately 818 million square feet.  “This inventory offers investors a wide choice of industrial real estate that has access to reliable public services.”

Photo: By Comisión Mexicana de Filmaciones from México D. F., México – Tijuana, Baja California, CC BY-SA 2.0, https://commons.wikimedia.org/w/index.php?curid=66036973

The Customs Broker in Mexico occupies a critical position in the international trade process.

Although custom brokers are an important component of the conduct of international trade all over the globe, here we will examine the great importance of the customs broker, in the specific case of Mexico.

The customs broker in Mexico is essential for the export and import of goods. This article will provide the reader with information on the importance of the customs agent based upon Mexican Law.   It will also answer questions related to the services that Tecma Customs Solutions provides for its clients engaged in doing business in Mexico.

The Customs Broker in Mexico

For the manufacturer in Mexico that is taking measures to begin to carry out activities related to foreign trade, the company, and its key personnel, must be aware that there is a highly trained individual who is very important that plays a central role in the process.  This person is the customs broker in Mexico.  He or she executes the export and/or import of merchandise in a manner that complies with Mexican Customs legislation. But in legal terms, who are the customs agents?

Importance of Customs Broker

Based on article 159 of the  Mexican Customs Law, the Customs Agent, or Broker, is the natural person authorized by the Ministry of Finance and Public Credit, also known as “Hacienda,” employing a patent, to promote the dispatch of merchandise in the different customs regimes that are prescribed in this law.

Under this law, the customs broker in Mexico is of critical importance for the importer or exporter, because, without the participation of this highly trained and knowledgeable individual in the process, no customs operations can be carried out legally.  Customs clearance of goods and merchandise by any individual other than a licensed customs broker is prohibited.  Only the broker has the authority to enter and carry out the customs clearance of the goods.

The customs broker in Mexico is the closest person to Mexican customs authorities since he first receives the documents for the clearance of merchandise. Among the most important ones is the import or export “pedimento.” The pedimento can only be completed by a licensed customs broker.  This operation is done at the request of the importer or exporter.  Also, very important, are the commercial invoice and the documents that verify compliance with product-specific regulations and non-tariff restrictions, etc.   The Mexican customs broker provides these documents to the customs authority.  The Officials then compare the information given by the customs broker in Mexico with the merchandise that is entering the country.

The Customs authority then informs the importing or exporting company that its merchandise is in good condition and that it is released by customs to be delivered on time.   On the other hand, however, it may also inform the shipper or receiver if the merchandise has been detained by Mexican Customs.  This could be due to the lack of compliance with a requirement that is contained in Mexican trade laws.

The staff of Tecma Customs Solutions provides their clients with the assurance that everything will be carried out successfully without any setback.   In addition to this, however, clients must also do their part since personnel in their foreign trade department are those that are charged with the correct preparation of the required documents.  Company employees must be familiar with and have knowledge of the documents that must be delivered to the customs broker.  Therefore, in practice, the responsibility for the entire customs clearance process falls on both parties.

The topic of Customs and who is qualified to be a customs broker in Mexico is extensive. Below are answers to frequently asked questions about the services that Tecma Customs Solutions offers to its clients.

• Does Tecma Customs Solutions provide end-to-end service to its manufacturing company clients?

Yes.  Tecma’s customs professionals make sure that shipments properly adhere to all applicable rules.  This is done to eliminate fines, delays, and other issues that can cost customers valuable time and additional financial resources.

• Is legal security guaranteed?

In order to maintain the legal security of its clients, Tecma streamlines its processes through the use of a proprietary cloud-based customs technology platform.  This tool, and experienced personnel, guarantee that all legal requirements of the international trade process have been adhered to.

• Does Tecma’s expertise in the areas controlled by a customs broker in Mexico free me to concentrate on my core manufacturing competencies?

Most definitely.  Tecma Customs Solution services allow companies to concentrate on what they are in business to do.  They can be confident in that knowledge that all issues dealing with Mexican Customs will be handled in an expeditious and professional manner.

Automakers in Mexico export more than 80% of their production and comprise the fourth-largest concentration of automobile exporters in the world.  This position could boost the country’s potential to manufacture electric cars.

A collection of internal combustion engine trucks and Ford’s 100% electric F-150 Lightning pickup made up the backdrop on the stage where Joe Biden challenged the automotive industry earlier this year. “The future of the automotive industry is electric. There is no going back,” asserted the president of the world’s number one economy.  Automakers in Mexico, in particular, took careful note of this statement.

This proclamation occurred on May 19, 2021, at the Ford electric vehicle plant in the US state of Michigan. Almost 4,000 kilometers away, in Mexico City, José Zozaya, president of the Mexican Association of the Automotive Industry (AMIA), recognized that a significant business opportunity appeared on the horizon for automotive manufacturers in his country.

“The global automotive industry is a pioneer in the use of clean energy technologies and the manufacture of electric vehicles. It is very important to consider the commitments that global OEMs have made regarding the future use of clean energy in the vehicles that they produce, as well as in the energy used at their assembly plants,” noted José Zozaya.  Global automakers are seeking to implement these measures in the 2035 to 2050 time frame.

The road to an electric future seems to be approaching. By 2040, it is estimated that 78% of the world’s vehicle fleet will be made up of cars with environmentally friendly technologies.  These include electric cars and hybrids, according to the KPMG “Global Automotive Executive Survey 2020” study.

As the fourth largest automobile exporter, automakers in Mexico will be advantageously positioned to take advantage of the demand present in the US market and the entry into force of the renewed Free Trade Agreement between Mexico, the United States, and Canada (USMCA) to clearly position itself as one of the winners in the race to manufacture electric cars.

Mexico’s automotive sector exports more than 80% of its production, and the United States and Canada are the main destinations for the products that are manufactured by automakers in Mexico.

A “golden opportunity” that Mexico is well-positioned to capitalize upon is the arrival of new production lines from companies seeking to access the lucrative North American market. Future growth in electric vehicle production is likely to propel Mexico into one of the first three positions of global automotive producer, says Héctor Romo, Leading Partner of Taxes of the Bajío Region at KPMG Mexico.

Asked if Mexico could become one of the leading countries in the export of electric cars, José Zozaya responds emphatically: “Sure. We are already in production. We believe that this is going to grow little by little because an entire infrastructure must be built to achieve the supply of clean energy that will be required to grow manufacturing operations.”

Additionally, the executive observes that the position of automakers in Mexico as exporters must be strengthened by government and business efforts that avoid letting this trend toward the use and production of clean technologies pass. “Mexico should not neglect this development (the use of non-fossil fuels), because its manufacturers could be left out of the growing production of clean vehicles.”

Consumers also demand infrastructure for the use of these types of vehicles. Providing a seamless charging experience is essential to the mainstream adoption of electric cars, as 84% ​​of consumers place responsibility for the charging infrastructure on OEMs.

Seventy-three percent of those surveyed by KPMG consider that mineral resources, such as the lithium reserves that a country has, determine the preferred transmission technology, says Héctor Romo.

The head of the Ministry of Economy, Tatiana Clouthier, said last May that the opening of the first country’s first lithium battery plant is certain to provide a significant boost to the electric car industry and automakers in Mexico.

“If things go well, later in 2021 we will be laying the first stone for a company that will be installed to produce batteries,” she said, after participating in the meeting of the International Trade Commission of the USMCA.

At present, the most important issues to overcome are the current challenges that are being experienced due to the coronavirus pandemic.  Automakers in Mexico must ensure that the industry is ready for the changes that are coming in consumer trends.  They must act to create the conditions needed to guarantee sustained and viable production in the country over the long term.

The current outlook for automakers in Mexico

José Zozaya considers himself a man of challenges. For him, 2021 is a year of hope.  As such, he believes that the future will be positive when the vaccine against Covid-19 is widely distributed.  “Once the health crisis is under control, I am sure that the financial recovery will be much faster. The automotive sector has clearly demonstrated this”, says the president of the Mexican Association of the Automotive Industry (AMIA).

However, the automotive industry has been faced, since the first months of 2021, with the lack of micro components in the Mexican market, which has limited the production of units worldwide after the health crisis last year.

“As a result of epidemic-related supply chain disruptions, the lack of these electronic inputs could cause the production of nearly 2 million vehicles to be limited,” explains José Zozaya.  He hopes that as the year progresses the production of micro-components will be increased.

The pandemic has affected the supply chain. The shipowners are thinking about how to mitigate the risks in this area in the face of a new eventuality, as happened in 2020.

Zozaya went on to add that “The automotive sector is the fundamental sector for the Mexican economy in general. All of us, governments and the automakers in Mexico themselves, must work to make it grow and create more jobs for more Mexicans.”

For nearly two decades, companies benefited from the Chinese miracle: low-cost, large-scale production was the norm. Now, COVID-19 and geopolitical tensions are changing the rules. So now is the time to locate your business in Mexico.

The coronavirus pandemic is prompting some companies to relocate their China-based supply chains to the North American region. But for this to happen, manufacturers will need a solid supply base that spans North, Central, and South America. Given this practical reality, an important message conveyed to the CEOs of the world is “locate your business in Mexico.”

The Mexican government calls it a “strategy of rapprochement”: the country’s Ministry of Economy has launched a campaign to attract companies, which are in China, Japan, and South Korea.  Trade officials argue that it is safer to bring production closer to a country like Mexico that enjoys a recently signed trade agreement and a more cordial relationship than China has with the US government.

The Asian country became the center of low-cost global manufacturing in the early 2000s. Then hundreds of Western companies closed their plants in their home countries to relocate there. In 2001, 400 of the Fortune 500 companies had invested in more than 2,000 projects in China, according to a United Nations Conference on Trade and Development, to produce everything from computers and electronic products to telecommunications equipment, automotive components, and petrochemicals.

Now is the time to locate your business in Mexico

For nearly two decades, companies benefited from the Chinese miracle: low-cost, large-scale production. But, over the years, dozens of supply chains became more dependent on Asian manufacturing. Although the products weren’t labeled ‘ made in China, some of the materials or supplies necessary for its production were.  These included clothing made with imported fabrics and yarns, car headlights assembled with plastics and electronic components, refrigerators, and washing machines made using Chinese-produced steel.

Although some American companies began to move part of their production in the years before the pandemic, due to commercial tensions between the Asian country and the White House, there were supply chains that continued to be highly dependent on Asia, such as that of semiconductors and steel.

The bubble burst when the coronavirus hit the country in early 2020, and the effects of the pandemic broke supply chains. The result was an immediate and continuous shortage of strategic inputs. These items ranged from semiconductors to high-capacity batteries.  This created a supply shock in the global economy that persists to this day.  Because of this continuing disruption, now is the time to locate your business in Mexico.

Chinese ports are congested, containers are empty due to lack of production, shortages of critical supplies continue, and air and ocean freight costs have risen. For example, officials in Mexico at JAC, a Chinese vehicle manufacturer, said last month that the cost of importing containerized assembly kits from China had increased between 300% and 400% in the previous year.

Today, the automotive and electronics industries face a shortage of chips whose restocking will not be complete until 2022.

Amid this global supply chain mismatch, analysts recommend the obvious: reduce dependence on China and develop regional chains. “Many companies are looking for an alternative,” says Dale Rogers, a professor at Arizona State University and an expert on the subject.

In February, the consulting firm, Gartner, noted that 33% of global supply chain leaders had moved sourcing and manufacturing activities out of China or planned to do so within the next three years.

A recent report, commissioned by US President Joe Biden, recommended strengthening industrial policy, especially for critical chains such as large-capacity batteries, active pharmaceutical ingredients, and semiconductors.  Studies such as this one indicate that now is the perfect time to locate your business in Mexico.

Additionally, the study’s findings acknowledge that it is neither realistic nor desirable for the United States to aim for self-sufficiency by creating purely domestic supply chains. “We will have to work with third countries to coordinate in critical sectors and ensure we maintain adequate access to critical materials,” says Rogers.

Among all the options available, Mexico offers a competitive labor cost similar to that of the Asian country and geographic proximity to the United States.

But it’s not enough

Beyond a competitive labor cost, the Chinese government has invested millions of dollars in ports, roads, and a modern high-speed rail system over the last few decades. “Its logistics infrastructure today is much better than that of any country in the Americas, including the United States,” says Rogers. Furthermore, with 18% of the global population, the Chinese market is one of the most attractive for large-scale production and consumption.

To create a regional supply chain in which Mexico plays a prominent role, it will be necessary to develop strategic alliances with countries in the region.  These relationships will aid in ensuring the supply of critical materials and the tax and research incentives required to invest in the building of a world-class logistics infrastructure.   Because an essential part of future economic security lies in constructing solid and reliable regional supply chains, now is the time to locate your business in Mexico.

Baja California has 931 companies within its territory.  This has positioned the state as a leader in the manufacturing, maquila, and export services industry.

Companies that have IMMEX certification in the entity represent 18% at the national level.  This statistic is according to the state’s Secretariat of Sustainable Economic and Tourism (SEST) information.  Within industry in Baja California, manufacturing in Mexicali plays a prominent role.

Specifically, Mexicali is positioned as one of the leading cities in the maquiladora industry in Mexico. A total of 124 companies affiliated with the Association of Manufacturing and Export Industry (Index) make up one of the most robust economic engines in the economy of Baja California.  Manufacturing companies in Mexicali are the source of approximately 70,000 direct labor jobs.

The majority of the companies that are foreign direct investors in the economy of Mexicali are from the United States. Still, the city has attracted businesses from Asia and Europe, as well.

Pillar of Investment

Of the industries present and manufacturing in Mexicali, companies from the medical device, automotive, telecommunications, metalworking, electronics, and, above all, the aerospace sector stand out.  In this industry, as of 2018, the city and Querétaro were in positions nine and ten, respectively, in the top ten of the FDI Intelligence world ranking of Aerospace Cities of the Future.  The business publication, the Financial Times, is the source of this information.

Currently, 40 aerospace companies are manufacturing in Mexicali.  These firms have a collective workforce of 16,000 laborers, and this number is now on the rise.

Although the United States remains the principal investor in the Mexicali aerospace industry, Canada, France, and Germany have targeted this growing city as a leading destination to expand their investments in the sector. Companies such as Collins Aerospace, Gulfstream Aerospace, GKN Aerospace, and Chromalloy, among others, stand out.

Regarding the specialized electronics manufacturing services (EMS) industry, Mexicali has received significant investment capital from Japan, South Korea, and Taiwan.  The plants use state-of-the-art equipment to produce their various products. Skyworks, Technicolor, Valutech, LG, and Mitsubishi have found an area of opportunity associated with manufacturing in Mexicali, Baja California.

With a highly trained workforce, the metalworking industry has consolidated itself in Mexicali in recent years. It has provided the right conditions for national and foreign companies to expand their operations in the city. In this area, companies such as Accuride, Black & Decker, and Rheem stand out.

Due to the 15 companies representing the sector, Mexicali contributes to making Baja California the most significant medical device cluster in Latin America. With a workforce of more than 6,000 engineers, technicians, among others, manufacturing, assembly, and packaging operations are carried out there. Vyaire, Intuitive Surgical, Breg, and Masimo are among the job-creating companies in the medical industry.

Companies that are manufacturing in Mexicali benefit from the fact that the state capital has a geographically privileged location bordering the neighboring state of California.  This position facilitates manufacturers’ access to the vibrant market situated on the other side of the international boundary. This proximity, in turn, is also desirable for investors from the Asian market who, in addition to gaining access to one of their most lucrative markets, reap the benefit of advantageous labor costs found in Mexico. Both US firms and those from other investor nations have discovered that Mexicali has enough infrastructure to accommodate investment and a workforce that is qualified.  This has been an essential attraction for high technological value companies that have decided to begin manufacturing in Mexicali.

The USMCA opens new opportunities for companies that are manufacturing in Mexicali

Recognizing the opportunities that will materialize in the medium and long term with the entry into force of the Agreement between the United States, Mexico, and Canada (USMCA) in July of 2020, companies that are manufacturing in Mexicali from outside the trading bloc can gain preferential access to the North American market as a whole.  Because of the manufacturing sector of Mexico, Baja California, and the city of Mexicali will continue to thrive and prosper

In the manufacturing sector alone, the economy of the state of Guanajuato generates an approximate total of US $4.8 million dollars in salaries for the 150,000 direct labor workers that it employs.

“Guanajuato is a great example, many do not know it, but Guanajuato generates nothing more in salaries, every day 4.8 million dollars are paid in payroll, to manufacturing employees, be it in automotive, food processing, or the textile industry.”  This is according to figures provided by the national president of the Maquiladora Industry Association (Index), Luis Manuel Hernández.

Of the 6 thousand nationwide members of Index, 400 are located in Guanajuato.  Of this total, production facilities in the automotive industry, food processing, and textile sectors are predominant.  These combined with other productive entities together serve to maintain a prominent ranking nationwide of the economy of the state of Guanajuato.

Luis Manuel Hernández confirmed that Guanajuato is an example to follow in the consolidation of industries and as an area of ​​opportunity.  The key to the state’s success is its ability to adapt its environment to the needs of the various industry and to increase the influx of productive investment.

The president of Index also commented that job growth expectations for Mexico’s maquiladora and export manufacturing industry could increase by 10 percent or more over last year’s numbers in the maquiladora and export manufacturing industry.  This is a result of increased international demand for goods that are being felt as the effects of the global coronavirus pandemic subside.

The 10 percent growth in employment in Mexico’s manufacturing sector is mainly due to the awakening of the United States market. Since the United States is projected to grow at a rate of between 6 to 10 percent.  With this increase in jobs, it expected that more suppliers will start manufacturing in Mexico.   Although 57 percent of the maquiladora industry produced goods are exported, it is projected that during this year that number will increase to 60%

The economy of the state of Guanajuato is a diamond in the rough

Despite the fact that Guanajuato has worked diligently to consolidate its industrial base and attract significant investment from medium and large-sized foreign companies, it is still a diamond in the rough that can accommodate additional economic growth.  According to the president of Index, the economy of the state of Guanajuato still has considerable available capacity to further increase productive investments in its robust industrial sector.

One of the successful strategic moves that the state government of Guanajuato has made is to invest in its educational system.  According to Hernández the quality and quantity of engineering talent that has been developed in recent years by the entity’s academic institutions gives the Guanajuato an edge over states with which it competes for foreign direct investment.

Although the economy of the state of Guanajuato has already consolidated its national leadership in industries such as automotive, leather footwear, textiles, and agroindustry, it is important that investment in these sectors continue.  This will serve to further strengthen the growth of the state, in addition to further promoting the education and employment of young people in those same sectors.

Union issues have to be seen from a business point of view

Given the issues that have arisen at the General Motors (GM) company Silao, Guanajuato plant regarding the collective bargaining agreement between employees and the union, Index’s president, Luis Manuel Hernández, recently observed that today the union’s relationship with its members must be seen from a commercial perspective.  Today, it is of paramount importance that employer-employee relations comply with the sections of the USMCA that pertain to labor.

The president of Index commented further that United States trade negotiators and government commercial officials are and have been very clear that the production value chain cannot be subject to the doubts that these types of conflict generate.  Labor unrest has the potential to cast a negative effect upon the economy of the state of Guanajuato. For this reason, the government of the State of Guanajuato has committed itself to maintain an environment that is conducive to the interests of investors as well as the workers that they employ.

Companies that seek to invest in the economy of the State of Guanajuato are invited to contact the experts at the Tecma Group of companies.

Innovation and digital transformation, as well as financing challenges, are affecting the manufacturing industry in Mexico.

As has affected companies everywhere else in the world, the manufacturing industry in Mexico was not adequately prepared for the disruption to its activities that was brought about by the Covid-19 pandemic.

In response to the crisis, companies were forced to confront the need to alter supply chain processes to affect the flow of material inputs and finished goods for manufacturing companies, their suppliers, and their customers. In some instances, companies had to stop operations partially, while in other cases, the epidemic required complete plant shutdowns.

This state of affairs resulted in many projects in the manufacturing industry in Mexico being delayed or even canceled.  This situation impacted flows of foreign direct investment, exports, as well as the direct employment generated by industry, according to Mario A. Hernández, a leading partner of international consulting firm KPMG’s IMMEX maquiladora industry practice in Mexico.

He went on to say that “However, the sector is demonstrating that it has the capacity to meet the current challenges that it faces, as well as has great resilience to get ahead of the crisis that is affecting our efforts. It is one of the most competitive, successful, stable, and important pillars of the Mexican economy.  Its ability to withstand the difficulties that the coronavirus pandemic has created is largely due to the well-established planning models that companies had in place.”

Besides the recovery of investor confidence in the manufacturing industry in Mexico, financial service companies will implement flexible financing programs and investment in innovation and technology advantageously in addressing the industry’s challenges in the new reality that will emerge after the pandemic subsides.

The manufacturing industry in Mexico as a growth detonator

The signing of the Treaty between the United States, Mexico, and Canada (USMCA) in July of 2020 was an important message for investors.   It signaled a high level of confidence in the Mexican manufacturing industry, according to the study that was entitled “Perspectives of Senior Management in Mexico 2021.”

While there are significant challenges that will arise from the agreement (increased value-added requirements and wage level requirements for the signatory countries, for instance), one positive aspect of the USMCA is that the manufacturing industry in Mexico will continue to play an essential role in stimulating the country’s economic recovery.

Funding to deal with the crisis

On the other hand, concerning sources of financing to deal with the crisis, it is necessary to divide the productive sector into two main categories: manufacturing companies with domestic investment and those with foreign-sourced capital resources.

As for the latter, it is not common for such companies to resort to the local financing system; however, there are fewer limitations for them concerning this consideration. As for firms comprised of domestic capital, efforts must be made to ensure that they can obtain sufficient credits from the financial system and thus revive the economic capacity of Mexico’s domestic capital industry.

Innovation and digital transformation

Other essential factors that play a role in ensuring the global competitiveness of the manufacturing industry in Mexico are innovation and digital transformation. Continuing to increase investment in technology under the concept of industry 4.0 brings great value to lift organizations to a reach a high degree of competitiveness according to global consumer trends, explains Hernandez.

As a result of the Covid-19 pandemic, “it is clear that the world has become subject to major changes: Accelerating technological disruption has transformed business habits and has transformed consumption patterns. In consideration of this new reality, the manufacturing industry in Mexico has to adapt and be disruptive.  It must progress to enhance its  competitiveness and optimize the economic growth that this important sector can bring.”

The United States-Mexico-Canada Free Trade Agreement (USMCA) and the recently implemented US economic stimulus will have a positive effect on the Mexican economy, especially its automotive sector.

In a semi-desert valley in central Mexico, one of the world’s largest automotive suppliers is preparing to open a new plant to produce components for the North American market.  Events such as this are underpinning the export business that has kept the country’s economy running.

Continental AG’s new factory in Aguascalientes should benefit from both the U.S.-Mexico-Canada Free Trade Agreement (USMCA) and US President Joe Biden’s trillion stimulus plans that have been designed to revive economic growth after the coronavirus pandemic.

The confidence expressed by executives of the German auto parts manufacturer in Mexico reflects growing optimism among analysts that the global recovery will have a positive effect on the Mexican economy and surpass expectations.  This economic expansion is anticipated despite persistent weakness in the country’s domestic demand.

“We know that high volume production of automobiles will occur, and this is what we are preparing for,” asserted Ina Seterbakken, manager of the Continental AG plant that is still under construction.

Continental fully expects that its business will revive after delays that pandemic-related issues have caused, Seterbakken said.  She added that the factory’s prospects of sales are positive given Mexico’s proximity to the United States, the world’s largest economy.

Latin America’s second-largest economy shares a nearly 3,200-kilometer border with its northern neighbor and has competed with China for the title of America’s largest trading partner in recent years, making it highly dependent on that country and its businesses.

The German company expects to increase its global sales in 2021 by 7% to 13% when compared to last year.  This forecast is according to a guide presented in March.  Despite this positive outlook, Continental will not reach the sales amounts that the company registered in 2019.

The new plant, which will employ about 1,000 people, joins a cluster of automotive factories located in central Mexico.  These manufacturers positively affect the Mexican economy by focusing production on meeting the demand of their business partners in the USMCA.

Fiat Chrysler, Mazda, Mercedes-Benz, Nissan, and Volkswagen have manufacturing plants in the region.

“If (the USMCA) had not been implemented, the economy of the country would have been completely changed,” said Gustavo Puente, Secretary of Economics of San Luis Potosí. Continental recently announced another additional investment that will total 60 million euros in his state.

External dependence

Last year, Mexico’s economy suffered its worst decline since the 1930s, with a contraction in its Gross Domestic Product (GDP) of 8.5%. Strong external demand for Mexican exports, however, has helped the country from suffering further.

The country’s current president, Andrés Manuel López Obrador, has resisted an increase in government spending to support an economic recovery.  He has argued that rather than positively affecting the Mexican as a whole, bailouts and deficit spending tend to put money in the pockets of the rich.

However, the nation has benefited from stimulus plans implemented in developed countries, mainly that of its northern neighbor.  The United States absorbs about 80% of all exports of goods from Mexico.

Led by the automotive industry, manufacturing accounts for nearly one-fifth of the Mexican economy.

In the face of positive economic expectations north of the border, Mexico’s government is upgrading its growth forecast for 2021 to be between 5% and 5.5% of GDP.  The country’s Treasury Secretary, Arturo Herrera, has acknowledged the “beneficial effects” on the Mexican domestic economy that the US stimulus plan will have for the foreseeable future.

Private sector analysts are doing the same: JP Morgan Chase recently raised its estimate for 2021, for the second time in the year, to 5.6%, from the 4% estimated at the end of last year.

“If it weren’t for the US government’s significant stimulus plans, Mexico would probably be growing by only a modest 2.5 percent or 3 percent,” said Gabriel Lozano, chief economist for Mexico at the US bank.

Commercial advantage and a positive effect on the Mexican economy

Mexico has thus far committed resources worth about 1.3% of its GDP to revive its economy.  Government action will take the form of increased spending on social programs and small business loans, and banking requirement reforms.  This information is according to International Monetary Fund (IMF). In contrast, in Latin America’s largest economy, Brazil, the figure is 6.2%.

However, according to the IMF, Mexico’s economy is expected to grow by 4.3% this year compared to Brazil’s 3.6%. The disparate character of both nations’ exposure to the United States could be one of the reasons for this difference.

According to data from the US Census Bureau, Mexico’s annual exports to the United States were about US $360 million before the pandemic.  This amount represents about one-third of the Mexican GDP. Meanwhile, Brazil’s exports to the US amounted to less than 31 billion in 2019.

The difference between Latin America’s two largest economies is also reflected in financial markets: while the Mexican stock market gained 4.9% so far in 2021, the Brazilian stock exchange has lost 8.2%.  Both of these figures are according to dollar measures.

But some analysts and entrepreneurs in Mexico have their doubts. They point out that overseas appetite for Mexican products contrasts with weak domestic demand.  Additionally, fixed capital investment in the country plummeted by more than 18% last year.  This decrease, however, will turn positive as the world recovers from the coronavirus pandemic.

Under this scenario, Mexico’s recovery will depend mainly on the government’s ability to encourage manufacturing investment, which could benefit from the widely perceived need to regionalize supply chains outside Asia under the USMCA.

Attracted by a lower-cost structure in Mexico, companies are cautiously seeing whether government measures to strengthen state control of the electricity market will affect energy-efficient sectors, such as automobile manufacturing.

“(The electricity sector) is crucial for the Mexican economy to grow steadily, but to do so, the state must guarantee the principles of free competition and legal certainty,” the American Chamber of Commerce (AmCham) said this past February.