The best word suited to describe Central Mexico manufacturing is dynamic.

An expansion of Mexican manufacturing is underway Growth in Central Mexico manufacturing is the main cause. Data for the first 11 months in 2017 show that the nation produced $345 in its production facilities.  This number represents an expansion of over six percent in real terms over the previous year’s figures in real terms for the same period, as well as the highest rate of growth recorded in the previous five-year period.

According to statistics recorded by, INEGI Mexico’s National Institute of Statistics and Geography, the breakdown of regional geographical economic expansion is as follows: Mexico’s center-west 5.6%, and center 11.2%, and the north of the country 4.4%.  Growth in the country’s south-southeast region slowed down at a rate of just over one percent.  These figures show that Central Mexico manufacturing experienced particularly noteworthy growth in 2017, especially when viewed in comparison with the country’s other regions.

Of the three areas that experienced Central Mexico manufacturing growth (Hidalgo Puebla, and the State of Mexico), the first two entities combined for approximately 68 percent of regional growth.  Production expansion was particularly strong was in the transport equipment sector of Puebla which is mainly comprised of automobiles and components for autos.  During the period under observation, the manufacture of vehicles in Puebla rose by just under 50%.

Central Mexico manufacturing growth is mainly the result of a 31.5% increase in Puebla; a 16.4% expansion in Hidalgo; and the upward trend of 10% and 3.6% in the state of Mexico and the state of Morelos, respectively.  Mexico’s capitol city experienced a drop of 5.8% in the production of goods over the 11 months of the last calendar year.

Although Central Mexico manufacturing led the way, the states of Baja California Sur and Nuevo Leon also experienced noticeable growth.  Additionally, the northern states of Durango and Sonora experienced a decrease in growth from January through November of last year.  Noteworthy production activity was experienced in Michoacán and San Luis Potosi, while there were negative rates of growth experienced in Colima, Nayarit and Zacatecas.  Manufacturing activity in Oaxaca and Veracruz also contracted.

Ranking

The state entities that added the most to Mexican national manufacturing production in the January to November timeframe of 2017 were the State of Mexico, Puebla, Coahuila, Nuevo Leon and Guanajuato. When grouped together, these entities provided a total of 51.5% of Mexico’s factory production.

Analysts at Mexico’s Center for Economic and Budgetary Research (CIEP) recently pointed out that Nuevo Leon and Coahuila benefited significantly because of their states’ proximity to the United States, and their economies’ export orientation.  Additionally, Guanajuato and its Central Mexico manufacturing benefited from its strategically central location in the industrialized Bajio Region.  The region is home to an increasing number of maquiladora manufacturers.

As already mentioned, Mexico experienced a significant expansion in the production of transportation equipment.  Broken down by individual leading states, equipment for automotive and trucks increased by 67.7% Puebla.  Coahuila and Guanajuato increased by 58.4% and 52.8% over the prior year. Beyond these areas, the manufacturing sector in the State of Mexico grew by just over 28 ½% in the State of Mexico and by a bit more than twenty-seven percent in the State of Leon

The largest rates of overall manufacturing expansion during in the first 11 months of 2017 in Mexican states was enjoyed by Tabasco (36.2%), Puebla (31.5%), San Luis Potosi (22.6%) Hidalgo (16.4%), Michoacán (14.9%), Baja California Sur (13.6%), and Nuevo Leon (11.1%).  Mexican economists attributed the double-digit growth in manufacturing in Tabasco to efforts to broaden its economy beyond the energy and oil sectors.

According to Raymundo Tenorio Aguilar of the Technological Institute of Monterrey, in Puebla, firms involved in textiles and the automotive sector had a greater level of activity “due to a favorable upward trend in exports, as well as in the metal-mechanic industry.”

For companies to enjoy the benefits that accrue to those firms that wish to pursue Central Mexico manufacturing, the Tecma Group of Companies has established shelter service operations in the city of Silao, Guanajuato.  While manufacturers bring their raw materials, machinery, and know-how to Mexico, Tecma provides the following services: Recruitment and Human Resources, Payroll and Benefits Management, Mexican Accounting, Import-Export Administration, Logistics and Transportation Management.  In addition to its Silao, Guanajuato, Tecma provides shelter services for manufacturing in Mexico in Cuidad Juarez, Tijuana, Torreon and Rosarito, Baja California.

Before November 30, 2012 many companies in Mexico routinely had the habit of employing Mexican labor contracts that were verbal.  Posterior to this date the Mexican government revised the nation’s Federal Labor Law (FLL) to define the types and number of agreements for labor that could be used by business owners to put Mexican citizens to work.  This noticed was published for the public in the Official Gazette of the Federation (DOF).  The Official Gazette of the Federation is a document that is published the Government of Mexico daily.  It is similar to the United States’ Federal Register and the Canada Gazette.

The Mexican Federal Labor Law (FLT) is the law that governs labor nationwide.  Only article 123 of Mexico’s 1917 Constitution supersedes it.

With the reform of labor, individual Mexican labor contracts are one in which a person agrees to lend to another a subordinate personal work.  This person receives a salary.  Article Thirty-Five of the Federal Labor Law has determined that relationship between employers and employees in the country can be for a specific position or period of time, for seasonal work, indefinitely, for a test period, or for training purposes.   Additionally, under Article Twenty-Four of the Mexican Federal Labor Law employers must record working conditions in writing, if no collective agreements apply to the relationship.  At least two copies of Mexican labor contracts must be made, one for each party.

Below are the main types of Mexican labor contracts:

Contract by Work or by Determined Time Period

Article thirty-seven of the FLL states that a specific time period for labor contracts in Mexico can be stipulated only when required by the nature of the work provided.  This stipulated time can also be defined when the contract with an individual is for the purpose of temporarily replacing another worker.

Mexican Labor Contracts for an Indeterminate Amounts of Time

This type of agreement includes those for undetermined work relationship or those that are longer than one hundred and eighty days.  In this instance, a trial period that does not go beyond 30 days may be established. This trial period can be employed for the sole purpose of ensuring that the employee meets the requirements and knowledge that is necessary to perform the work that has been defined.

Contract for a Trial Period

The inclusion of Article 39-A of the Federal Labor Law provides that in the case of trial periods, (which will be between 30 and 100 days for technical and administrative work), if the employer decides not to continue the work relationship, he or she must then go to Mexico’s Training and Productivity Commission to let the worker go. To avoid the abuse Mexican labor contracts for a trial period, the law stipulates that back to back contracts for training will not be used.

Training Contracts

Training Mexican labor contracts have been enacted so that individuals who do not have experience are able to acquire it by engaging in their personal subordinate services. According to Article Thirty-Nine-A of the FLT, it is considered that there is a work relationship for initial training when a worker is obliged to provide subordinate services under the management and command under an employing entity.

Training contracts are of a maximum period of 3 months unless the training is for managerial positions.  Positions in management have a maximum training period of up to six months.  When the trial or initial training period ends, and the work relationship continues, it should be considered employment for an indefinite time period.

Seasonal Mexican Labor Contracts

Under article 39-F of the FTL, there is the specific provision that employment relationships for an indefinite period in Mexican labor contracts will, generally speaking, be continuous.  However, there may be agreements that are not for a specific time frame but are for seasonal work.  Under these types of Mexican labor contracts, workers have the same rights as those workers that are employed under a contract that is indefinite.

When starting up businesses in Mexico, it is of importance that employers have a rudimentary knowledge of the number and types of Mexican labor contracts that they can utilize to organize and manage their staff.  Companies that work as partners with a shelter company in Mexico have the advantage of having experienced guidance in using each of the different types of contract to their best advantage.   In conclusion, it is the utmost importance that both the worker and the company know and understand their labor rights and obligations.

If an individual is seeking position or is contemplating a move from one firm to another, the salary offered in Mexico by the potential employer is always the initial thing that is considered.  However, benefits for workers in Mexico are also of great importance to prospective job candidates.  Although in that nation there are some benefits that are defined and mandated under the country’s labor laws, others are provided voluntarily.  This post will examine both the mandatory and volunteer benefits commonly paid by companies that do business in Mexico.

Benefits for workers in Mexico that are mandatory by law include:

• Profit sharing bonus (Fifteen days pay per year, or a proportional part that correspond to employment of less than a full year);
• Social Security;
• Vacation premium (25% of the workers salary corresponding to the vacation period);
• National holidays off;
• Retirement Fund.

Among the nine top non-mandated benefits for workers in Mexico that are not legally prescribed are:

• Productivity bonus – This benefit is dependent upon reaching a business’ objectives and goals is and it is one of the voluntary perks for Mexican workers that is commonly granted to employees. The disbursement of this additional money is useful in that in addition to being advantageous for both the company and its workers, it instills a healthy environment of competition between the worker and his or her colleagues;
• Training –Another voluntary benefit for workers in Mexico that is common is training, which is of critical importance. Education promoted within the Mexican workplace not only has a positive effect on productivity, but also serves to provides an opportunity for growth within the company those individuals that it employs.  Company paid training is one of the most effective ways that small and medium-sized businesses can hold on to their talent.
• Insurance for major medical expenses – In many instances, key employees in Mexico operations are offered an insurance policy that will pay for expenses that are over and above what the country’s Social Security Institute covers. Such policies enable those that have them go to private medical networks for service in cases of emergency;
• Dining area and cafeteria – Many companies offering benefits for workers in Mexico provide their people with a daily breakfast and lunch. Meals in the bigger businesses may be prepared by in-house cooking staff.  Mid-sized companies often hire out their food service out to third-parties, whereas smaller firms may just have a microwave in a meal area with which employees are able to warm their meals.
• Prescription drugs and food coupons –another form of non-salary perks received by many workers in Mexico includes a monthly number of vouchers for food from local grocery stores and medicinal drugs from local drug stores. These benefits for workers in Mexico are well-received by those that enjoy them;
• Fund for savings – This benefit is very good for workers that are disciplined in their savings practices. Usually for each dollar saved by the employee the employing company makes a match of a percentage that is defined by its policies;
• Company vehicle – This voluntary benefit for Mexican workers is most often reserved for the managerial staff of a company. It is a proven means by which top company talent is retained.
• Scholarships – Some businesses award scholarship gifts to its employees, as well as to their employees’ family members, for study at local colleges and vocational and technical institutions. In addition to enabling employees in obtaining a secondary education, a growing number of companies provide assistance to workers that are working to complete bachelors, masters and doctoral programs.

Although providing the aforementioned optional benefits for Mexican workers represent additional costs for employers, they often pay for themselves in the form of better educated and more productive and committed workers that are more able to help bring about a company’s growth.  Additionally, the payment of non-mandatory benefits can result in:

• Increased company appeal in the local job market that will make recruitment increasingly successful;
• Diminished turnover that will save the company budgetary resources in finding and training new personnel, as well as expenditures related to a loss of worker productivity;
• Better morale because of the offer of an attractive package of worker benefits in Mexico. Employees that are well-compensated stay put and forge lasting relationships with each other thereby forming more productive company teams;
• Better job performance is a result of employing workers in Mexico that care more for their employing company and remain loyal. As a result, individual workers work more diligently.  This inevitably leads to the production of a service or good of greater quality.

Although Mexico mandates that employers provide certain benefits that a prescribed by law for its workers, many companies go above and beyond what is called for.  They commonly provide of benefits that are voluntary to maintain competitiveness in active and competitive Mexican labor markets.

Remember, interested parties can receive Mexico manufacturing information on a weekly basis by SMS Texting the word Tecma to 96000.

Four Mexican states: Guanajuato, Queretaro, Aguascalientes, and Jalisco make up an area known as the Bajio.  The automotive industry in the Bajio is host 50 percent of the country’s productive capacity in this well-developed manufacturing sector.

The automotive industry in the Bajio, and in the nation, began to reach its apogee in 2010.  As of  2015 Mexico is the 7^th largest manufacturer of automobiles in the entire world.  Only China, the United States, Japan, Germany, India and South Korea produce more passenger vehicles annually.

The rise of the automotive industry in the Bajio, and, by extension, that of the country of Mexico began in earnest in 1994.  At that time, 1,000,000 motor vehicles were churned out of the country’s factories.  By the year 2014, Mexican production of passenger vehicles continued to climb, and the nation’s domestic industry manufactured above 3 million automobiles. Industry experts foresee that by the year 2020 vehicle production rise above five million.  It is the consensus that the automotive industry in the Bajio will be the source of a 50% of the total national production by that year.

With the development of the passenger vehicle industry in the Bajio, Tier one, two, and three suppliers have followed to supply Original Equipment Manufacturers, also known by the acronym OEMs.  In terms of the total number of the firms that are suppliers to the automotive industry in the Bajio, the state of Queretaro leads the rest.  Not only does that state have the largest number of auto suppliers within its boundaries in the Bajio, the state leads all the Mexican Republic.   As regards the expansion that Queretaro has experienced in this sector it is noteworthy to consider that in the 1970s there were only six auto parts manufacturers with a local presence.  Today Queretaro is home to seventy-eight auto parts manufacturers that employ a total of at least 50,000 workers.

In addition to the automotive industry in the Bajio, the entire nation has become a preferred investment site for the manufacturing of auto parts.  Major Tier 1 suppliers such as Lear, Delphi, Johnson Controls, Pirelli and Continental among many others have a sizeable presence in Mexico.  Beyond well-known companies, Mexico also is host to two thousand small and medium-sized supplier firms that service the automotive industry in the Bajio, as well as auto parts manufacturers in other regions of the nation.

One of the critical positive elements for the automotive industry in the Bajio is its geographical position.  The Bajio is completely level, which makes it an excellent place at which to build production facilities.  Also, its position in Central Mexico ensures that it is a place with a sophisticated transportation network that is made up of rail and highways.  It is easy to ship product to the nation’s northern border, as well as to move manufactured automobiles to Mexico’s seaports.

The most production in the automotive industry in the Bajio occurs in the Guanajuato state.  In recent times the entity has been the recipient of an estimated US $12.4 billion dollars of investment capital in the sector.  At a recent Automotive Industry Summit, the government reported that the Guanajuato state’s automotive industry manufactured just shy of 800,000 vehicles, and that production is projected to rise to almost one and one-half million.  When manufacturing activities reach this level 1 out of every 4 passenger vehicles will be made in Guanajuato.

Among the most critical auto parts produced by suppliers in the automotive industry in the Bajio are engines.  At present, just shy of one million engines are produced today in the Bajio.  This number is expected to exceed the million-unit mark in the next several years.  The region is also home to the significant production of passenger vehicle transmissions, tires, castings, machined parts, plastic components, cable and electronic assemblies, fiberglass components and stamped metal parts among other inputs.

Perhaps the most significant edge that benefits the automobile industry in the Bajio is the presence of a trained population of workers. In 2017 the Multilateral Fund partnered with the Inter-American Development Bank (IDB) and the Community Foundation of the Bajio to pool resources to promote the education and training of the region’s workforce.  This effort has the backing of 20 of 74 firms located in the City of Irapuato, Guanajuato’s Castro del Rio Industrial.   It is the goal of the Inter-American Development Bank and its partners to encourage and secure the participation of all the residents of the industrial complex by 2020.   Other industrial parks that will take part in the initiative soon are in Silao and the municipality of San Vicente and Cardenas.  Other entities that have taken on a key role in workforce training for the automotive industry in the Bajio include the National College of Technical Professional Education, CONALEP, the Virtual University of the State of Guanajuato and the Higher Technological Institute of Irapuato.

Remember, interested parties can receive Mexico manufacturing information on a weekly basis by SMS Texting the word Tecma to 96000.

Manufacturing in Silao, Guanajuato has become a popular choice in recent years.

The municipality has become a favorite of companies that seek to make foreign direct investments in Guanajuato, Mexico.  In the last five years, Guanajuato has been the recipient of two hundred and forty-five foreign investment projects that have constituted a total capital outlay of $11.7 billion and have resulted in the creation of 79,500 jobs.  According to information that has been gathered by the Secretariat of Sustainable Economic Development, however, of the total sum, Silao by alone has received a full 24.5% of the state’s manufacturing investment in the last five years.  In that period Silao has had an influx of almost $3 billion dollars, 13,300 jobs, and sixty manufacturing projects.  Manufacturing in Silao is to produce in the preferred city for investors in the Mexican state of Guanajuato in the country’s Bajio region.

After projects that have resulted in further manufacturing in Silao, Guanajuato the city of Irapuato takes second place.  During the last five-years, Irapuato has been the recipient of total capital outlays of more than two and a half billion dollars.  This translated into forty-one Mexican industrial projects and twelve thousand three hundred jobs in this city.  Coming in third in terms of foreign direct manufacturing investment in Guanajuato is the city of Apaseo Grande which has attracted almost one and a half billion dollars of foreign investment.  Coming after Apaseo Grande is the city of Leon, in fourth place, and Celaya in fifth.  Over the last five years, Silao and the state of Guanajuato as a whole have been a preferred target of new industrial investments.

One of the central reasons that production in Silao has become a popular option for investment is that the city is the site of Guanajuato’s Puerto Interior (GPI).  The Puerto Interior is a premier logistics center in Latin America and is the first Mexican dry port to be a member of the Inter-American Ports Commission (CIP) of the Organization of American States (OAS).  Manufacturing in Silao, Guanajuato is facilitated by the site’s local, which is in proximity to the Bajio International airport and Mexican Federal Highway Forty-Five.

Manufacturing in Silao, Guanajuato in the Santa Fe Industrial Parks

Manufacturing in Silao takes place in the four industrial sites that are located within the GPI.  The industrial parks are Santa Fe I, Santa Fe II, Santa Fe III, and Santa Fe IV.  The parks’ infrastructure supports the activities of firms engaged in logistics activities, as well as businesses that are involved in light and medium manufacturing.   A list of firms that are contained within the boundaries of the Guanajuato Interior Port includes Malhot of Mexico, Hino Motors (a subsidiary of Toyota), HAL Aluminum, Guala Dispensing, Volkswagen, Pirelli and Teco Westinghouse among others.  Although the facility is in place for manufacturing in Silao, Guanajuato to be conducted, it is only a short thirty-five kilometers from the state’s capitol city of Guanajuato, Leon.

Facilities in or in proximity to the Guanajuato Interior Port (GPI) include:

Customs

Manufacturing in Silao, Guanajuato has access to the most modern and best-planned customs facility in the entirety of the Mexican Republic.

Specialized Railway Freight Terminal

The railway freight terminal handles Mexico rail transport to and from any of the points in the country-wide network, including principle Mexican cities, as well as the country’s international borders and seaports.

International Airport of the Bajio

Manufacturing in Silao, Guanajuato is supported by a modern airport that is in close proximity to the GPI. In addition to the municipality of Silao, the airport serves the state in its entirety. It is one of the country’s best-connected interior airports and provides daily non-stop flights to destinations in the US such as Dallas, Los Angeles and Houston.

Services and Innovation District

In an area that is next to the Guanajuato Interior Port (GPI), manufacturing in Silao, Guanajuato is serviced by an area that includes a wide assortment of complementary services.  Not only do the services and innovation district contain firms that participate in providing logistics services, it is also the site of a new Fiesta Hotel and a corporate tower.  Office and commercial space are available for rent. Among other uses for the district are banking and financial services, food and convenience services, transport services and more offices for a multitude of other uses.

Education and Training Zone

Manufacturing in Silao, Guanajuato requires that the area’s Mexico workforce be well-trained.  The Guanajuato Interior Port will also be the home of a campus for the National Polytechnic Institute.  Majors in engineering and others required by manufacturing companies will be offered.  Additionally, a training center for industry will be onsite and will be administered by CONALEP.  CONALEP is Mexico’s National Technical Professional School.  It the organization that is the nation’s largest technical education system and serves low-income individuals at the upper-secondary school level.

Community Service Center(CSS)

This CSS has been put in place for the purpose of supporting individuals and companies involved in manufacturing in Silao, Guanajuato.  It contains a fire station, nursery, and a health center.  The center offers occupational health services and emergency care.  Included in this area is a sports park for employee recreation.

There an abundance reasons that global manufacturers choose to initiate production operations through a Mexican shelter company in the Bajio.

In a world that is becoming increasingly specialized, it is a good option for small to mid-sized operations to focus on what they are in business to do.   They should concentrate on producing product, instead of investing in industrial buildings, paying international attorneys’ fees for services, dealing with accountants and creating their own Mexican human resources infrastructure.  Using a Mexican shelter company in the Bajio is a practical way for medium-sized companies to enter a growing market.

Reasons abound for opting to choose a Mexico shelter program to set up production in the Bajio, and elsewhere in Mexico. Beyond offering a complete set of services, shelter companies in Mexico ensure foreign companies’ adherence to labor law in Mexico.

Mexican Labor rules are defined by the Ley Federal de Trabajo and is supported by other laws.  Although in some cases it is not flexible, it hasn´t prevented many foreign companies, and thousands of non-Mexican sole proprietors, from establishing profitable operations in Mexico. Many manufacturers enter into partnerships with a Mexican shelter company in the Bajio, or in another part of Mexico, to help them do so.  It is worth noting that any company entering Mexico to do business should understand both the immediate and historical implications of the Ley Federal and other important, if lesser-known, laws.

First, a summary:

The revolution in Mexico that commenced in 1910 led to the establishment of Article 123 of the Constitution of 1917. That section of the Constitution gave workers the right to unionize and strike. It also provided for the safeguarding of children and women, the establishment of an eight-hour workday and the payment of a living wage. It was not until 1931, however, that the Ley Federal was put into effect. The law provided for the formation of Boards of Conciliation and Arbitration (Juntas de Conciliación y Arbitraje) made up of employers, representatives of the government, and unions. Those boards have not changed much since their initial formation.

Among features of the Ley Federal and the more recent Social Security law that are that are considered are:

The Dismissal of an Employee:

Letting an employee go can be costly for Mexican shelter company in the Bajio, as well as for companies located elsewhere. In some instances, having a presence in Mexico under through an association with a service provider can lessen this exposure to a certain degree.

If an employee is dismissed without cause, he or she is eligible to collect three months” pay. If that sum is not paid at the time of dismissal, then an employer may be liable for the original sum, plus all wages that would have accumulated had the worker been present in the meantime. If the worker has been on staff for less than a year, the employee is to compensated with one half of the salary of the period he received from the company. If this period is greater than one year, then the compensation is to be equivalent to a sum that is equal to six months’ salary of the first year and twenty days per year for each of the additional year of service. The compensation is based on the base salary of the employee during this period. Because a shelter company in the Bajio and the rest of Mexico is, for the purpose of Mexican labor law, the employer of record, the shelter company can, when possible, reallocate workers from companies from those that are laying off employees to other client companies that have an added demand for manufacturing workers.

The Work Day in Mexico

For every 6 days worked (Monday through Saturday), employees are entitled to one off with full payment.

The Payment of Overtime in Mexico

If an employee works on a holiday, he is to be paid at three times the established hourly wage. Any hours worked over eight for 1 day are compensated at double time.

If an employee leaves a shelter company in the Bajio, or elsewhere in Mexico, the company must compensate him or her with the proportionate part of vacation pay and profit sharing for the year-end. If an employee has labored for more than fifteen consecutive years, the worker shall receive an additional sum equal to twelve days salary (calculated on the last salary received prior to resigning) for each year that he or she has been with the company.

Vacation Pay

Mexican employees of a shelter company in the Bajio, and elsewhere, have a vacation each year, which is not less than six working days. For every year an employee labors, he or she is to receive an additional two days of vacation time.  At the end of four years, he or she is the recipient of two working days for every additional 5 years’ experience. In addition, the employee will be paid no less than a 25% vacation premium calculation on his or her salary during the period in question.

The Sharing of Profits

Employees are to be compensated with ten percent of the employers’ profits each year. Included in the payment are works who worked 60 days or more during the applicable period. The distribution is to be made within 60 days of the date workers are required to make their income tax payments. These profit sharing monies do not count for taxation purposes when it comes to determining annual salary amounts.

Union Representation

A labor union is permitted in the workplace provided that at least twenty percent of company employees are members. Even so, the registry process is slow and complex.

Mexican Social Security Law

The Mexican Federal Social Security system, which is made up of nationwide medical personnel and facilities, is funded by a mandatory charge to the company. In addition, employers are required to contribute to the Instituto Nacional para el Fomento a la Vivienda para Trabajadores.  This organization manages the national housing fund. Together, these charges account for about 29 percent of an employee’s base. As such, salary is considered to be 129 percent of base salary.

Manufacturing companies that establish wholly-owned entities rather than through a Mexican shelter company in the Bajio, or elsewhere in Mexico, must have staff that is very well versed in Mexico’s labor law in their organization, as well as have access to persons that have a knowledge of Mexican law. Shelter companies in Mexico provide firms that produce goods in the country through their turnkey services with the guidance that they need to navigate these issues, as well as a wide class of others.

Prior to the 1980s, the manufacturing industry in the Bajio of Mexico represented approximately twenty percent of the economy of the region, while the share of Gross National Product (GDP) now stands at twenty-six percent in the states that include Guanajuato, Jalisco, Silao, Querétaro, and San Luis Potosí.

Recently, the economy made up of industry in the Bajío has been characterized by an expanding economy that has exceeded that of the nation’s average. This set of circumstances has its origin in the vitality of the region’s manufacturing sector, (more specifically the portion of the industry’s base that accommodates manufactured items for shipment to foreign consumers), which can ramp up its production beyond the limit of domestic demand.

It is of note that the growth of industry in the Bajio had its start during in the last quarter of the last century.  Before the 1980s, manufacturing represented twenty percent of the region’s economy, while its share of Gross Domestic Product (GDP) now stands at twenty-six percent in the entities of Guanajuato, Querétaro, Jalisco and San Luis Potosí.

It is with the aperture of Mexico’s borders to foreign trade, through the signing of the GATT, or the General Agreement on Tariffs and Trade, that base of production began to develop.  The opening of the economy of Mexico was a positive of the firms that made up industry in the Bajio.

 The growth of Industry in the Bajio exceeds that of the national economy as a whole

Another of the beneficial features of industry in the Bajio is the rapid pace of its growth as of late. While this level of activity marked an average yearly growth of 1.7 percent during the years 2003-2016, Bajio industry expansion was 4.6%. This trend continued in 2017 and is being sustained through the beginning of the current year.

An examination of the industrial activity of the first nine months of 2017 showed that industry in the Bajio the grew at a 5% yearly rate.  This is in accord with information put forth by local economic development agencies. Again, the pace of industrial production of these 4 states surpasses the growth of 3.7 percent that was enjoyed in the country as a whole.

By state component, San Luis Potosí had the best results in the first nine months of 2017. According to estimates, the production of manufactured products in the state grew 8.5 percent in relation to the same period of 2016; San Luis Potosí followed by Queretaro, which registered a growth of 5.2% during the same period.  Despite the uncertainty surrounding the renegotiation of the NAFTA it is also predicted that the economy of the Bajio state of Jalisco will increase at a three percent pace.  Much of this growth will take place in the manufacturing sector.

An examination of industry in the Bajio, reveals that it is estimated that the sector’s production will expand at a yearly rate of almost four and one-half percent in the current calendar year. In terms of the expansion of the region’s industrial base, Guanajuato grew at just over two percent in 2017 and is projected to expand at 2.5 percent rate during 2018. Guanajuato state is the most active of the producers in the Bajio.

The industrialization of the Bajío region has been and will continue to be, a clear success.  This is the case at a time when using technology from overseas was more convenient when compared to using homegrown know-how. On close inspection, it is evident that the Bajío is an inextricable part of the global chain of production.

Although industry faces the challenge of continuing to evolve at the rate that new technologies are incorporated in the transformation of products, industry in the Bajio, and in Mexico as a whole, there is a possible additional challenge: a potential restriction on foreign trade resulting from the renegotiation of the North American Free Trade Agreement.

Although the economic model that focuses on good shipped from the region has paid off in terms of industry in the Bajío, growth through the satisfaction of the internal market for goods is not being ignored.

Recently the Tecma Group has made the decision to expand along with industry in the Bajio.  It is listing the region as one of its locations to be included with already established manufacturing sites in Tijuana, Baja California and Ciudad Juarez, Chihuahua.  It’s shelter services for manufacturers in Mexico represent a turnkey means by which factories can establish factories in the maquiladora industry with a minimal amount of risk and the greatest degree of organizational security.  Global manufacturers bring their know-how, their equipment and material inputs to Mexico.  The Tecma Group takes charge of all activities that are not related to a company’s main manufacturing processes.  Among the services included are recruitment and human resources administration, accounting, payroll and the purchase of MRO items, and site selection and facility choice.   The Tecma Group’s manufacturing shelter services can also enable companies to cut their manufacturing costs up to fifty percent.

As of this writing, the Mexican automotive industry is experiencing a period of uncertain conditions due to the ongoing renegotiation of the NAFTA.

One of the main points of differences in the renegotiation of the North American Free Trade Agreement is the rules of origin for the Mexican automotive industry, as well as for the automotive sector in the United States and Canada. It is generally agreed upon that a modification or a change of the rules will not only cause changes in Mexico but will also influence the United States and Canada.  More specifically an alteration of the rules for the automotive sector under the NAFTA may have a disruptive impact on the North America-wide supply chain that has formed over the two-plus decades that the NAFTA has been in effect.

As of the end of the past year, the three countries that are a party to the NAFTA have not come to an agreement on the form that the updated rules of origin will take.  It is the hope of the three NAFTA countries that a determination of the new regime for the Mexican automotive industry, as well as in Canada and the United States will take place during the North American Free Trade Agreement renegotiation sessions that are scheduled to take place during the first quarter of 2018.  In the upcoming fourth round of talks, the Trump administration will be seeking to raise the regional content in the automotive industry from 62.5% to 85%.  He also is stipulating that fifty percent of that content be produced in the United States.  One of the main purposes of seeking this change is a desire to reduce the United States’ commercial deficit with a Southern neighbor.  Most of the imbalance in trade with Mexico is due to the fact that the United States imports more than it exports in the automotive industry to its NAFTA partner.

The trade deficit of the United States with Mexico increased from thirty-four billion dollars to sixty-one billion dollars from 2012-2016.   The commercial deficit that the United States has with Mexico is elevated when compared to that between itself and its northern neighbor.  The United States’ deficit with Canada now stands at a much lower $10.9 billion.

In terms of the major products exported from the US to Mexico, transportation equipment (including motor vehicles) accounts for some fifteen percent of all shipments to that country.  In addition to the Mexican automotive industry, the US exports a significant volume of electronics and computer products.  Last year 5% percent of items shipped consisted of these products.  Finally, shipment of crude oil to Mexico stood at 2.5%

What will happen to the Mexican automotive industry should the rules of origin be changed?

Those that track the Mexican automotive industry such as Gabriella Siller, director of Economic and Financial Analysis at Banco BASE, are of the opinion that an alteration in the rules of origin, or a potential departure of the United States from the North American Free Trade Agreement, will have a measurable effect on the three of the countries’ automotive industries.   Taxes raised on car and auto part imports from the Mexican automotive industry to the United States and Canada will precipitate a restructuring and possible dislocation of the NAFTA region supply chains.  Increased taxes on imports of Mexican product into the US will result in consumers paying more for automotive industry outputs.

Some industry watchers, including Eduardo Solis who is the executive director of the Mexican Association of the Auto Industry (AMIA), is of the opinion that the North American Free Trade Agreement has been good for the Mexican automotive industry, as well as for the auto sectors in both Canada and the United States.  He believes that a change in the NAFTA automotive rules of origin is not necessary.  Other individuals such as Luis Aguirre of the National Council of the Maquiladora and Export Manufacturing Industry (INDEX) opine that higher costs in the price of vehicles to consumers sold in the NAFTA region will not only adversely affect buyers but also will not be a positive for the automakers.   Experts believe that if there is a measurable alteration in the automotive rules of origin under a renegotiated North American Free Trade Agreement, adjustments should be put into place over a reasonable timeframe and not be altered from one day to the next.   This is because a change to the current rules would weigh upon not only the end price of vehicles to the consumer but would also be something that would tangibly impact firms’ manufacturing processes and investment decisions.   Due to Mexico’s pending presidential election season, NAFTA negotiators hope to resolve this issue by March.   Should negotiations extend beyond the conclusion of the upcoming Mexican elections, the Mexican automotive industry, as well as those in the Canada and United States will experience an even longer period of uncertainty.

There are a number of public and private entities to interact with then starting a business in Mexico

When starting a business in Mexico there are various requirements and legalities that must be followed.   This post points out some of the public authorities and private organizations that are involved in the process of initiating operations.  When taking this information into consideration, it is of importance to know that with the shelter program model of starting production operations in Mexico most interaction with government entities is in the domain of the shelter service provider.

The Ministry of Foreign Affairs

The Ministry of Foreign Affairs (SRE), through the General Directorate of Permits and Article 27 of the Mexican constitution authorizes the founding of a business.  To open a firm in Mexico it is necessary to establish and register its name with the Ministry of Foreign Affairs.  The SRE is the body that is responsible for making certain that the chosen business name has not been previously used by another entity.

Public Notary/Public Registry of a Commerce

Starting a business in Mexico is made possible through an agreement called a “constitutive writing.” This contract establishes the requirements and rules under which a firm will function.  Among the information contained therein are:

• The purpose of the corporation;
• General information regarding the partners to the endeavor;
• Amount of capital invested
• Company name;
• Information regarding the time during which the company will operate.

The agreement commonly referred to as “the statutes,” must be written and notarized.  Following notarization, the firm must be listed with the Public Registry of Commerce (SECOFI).

Ministry of Finance and Public Credit

Within thirty days after starting a business in Mexico, the entity must be registered in the Federal Register of Taxpayers with Mexico’s Ministry of Finance and Public Credit, or “Hacienda.” Hacienda is the Mexican version of the Internal Revenue Service in the United States.

Municipal Government

When starting a business in Mexico, certain activities carry the mandate that an operating license be given by the municipal government of the locale in which business will transpire. This license must be kept in view.  Also, some cities and towns, including Mexico’s Federal District, require that a Land Use Permit be obtained.

Mexican Social Security Institute

When starting a business in Mexico, the company that is the employer must make sure that all workers are registered with the Mexican Social Security Institute (IMSS) within a five-day period for the purpose of complying with Mexican labor laws.  The employer’s occupations will be classified by the Mexican Social Security according to the Regulation of Classification of Companies.  This is done to determine the “risk factor” that is associated with the tasks that the company will perform.

Banking Institution

When starting a business in Mexico, companies must select a bank through which they will execute their financial activities.   Through this account, payments will be made, as well as payment for all accessed services such as telephone, electricity, and gas.  In addition to registering with Mexican Social Security, companies must enlist with the Savings System for Retirement.  Deposits into laborers’ retirement fund must be made to a special account for this purpose every two months.

Mexican Business Information System (SIEM)

When starting a business south of the border, manufacturers must enroll themselves in the Mexican Business Information System (SIEM) in accordance with the Law of Business Chambers and their Confederations.  The SIEM makes tools available to find suppliers, to increase sales and to find potential customers.  It also provides business support in that it supplies information about public sector procurement programs.

Coparmex, or Federation of Employers of the Mexican Republic

The Employers Confederation of the Mexican Republic (COPARMEX) is a volunteer membership organization of businesses, that provides representation in the workplace and in society as a whole. Its more than 36,000-member firms across the Mexican Republic are responsible for thirty percent of Gross Domestic Product and 4.8 million jobs in the formal sector of the economy.

Unions

Even though, when starting a business in Mexico, association with a union is not legally required, entities of over 20 workers can be members of a union.

National Institute of Statistics

Upon starting a business in Mexico, and for the following years thereafter, certain data regarding the business must be given to the National Institute of Statistic or, as it is known by its Mexican acronym, INEGI.

Secretary of Commerce and Industrial Development

Another public entity with which parties that are starting a business in Mexico must come into contact is the Secretary of Commerce and Industrial Development (SECOFI).  Among this organ’s responsibilities is the authorization and verification of all technologies dealing with weights and measures. SECOFI also regulates and registers the NOMS or Official Mexican Standards.  The registration of NOMs for certain specified items is obligatory.  Among them are clothing, footwear, measuring and testing equipment, and healthcare products.   Additionally,  the Secretary of Commerce and Industrial Development is the government entity that records trade names, patents trademarks, and other forms of industrial property.

Other organizations which come in contact with those starting a business in Mexico include the Secretary of National Resources and Fisheries, t Secretary of the Environment, the Ministry of Labor and Social Security, and the National Water Commission among others.

Starting a business in Mexico as a stand-alone entity is a laborious process.  This process, however, can be simplified with the assistance of a shelter service provider.

Salaries in Mexico are Latin America’s lowest

Among the main goals of the North American Free Trade Agreement was to build a middle class in Mexico that has the economic power necessary to consume goods imported from its two NAFTA partners, the US and Canada. In reality, however, and in certain instances, depressed salaries in Mexico have been a competitive advantage in practice.

The Trump Administration would like to see salaries in Mexico rise in order to achieve its objective to reduce the number of US-based firms that cross the country’s southern border. Low salaries in Mexico, which many of the country’s economic policymakers attest make the whole North American Free Trade Agreement region more competitive, is among the primary reasons that many businesses find investing in Mexico to be an intelligent strategic decision.  However, according to Trump this is one reason why the United States has a substantial, US $64 billion trade imbalance with its southern neighbor.

While salaries in Mexico have on average increased 424% across the breadth of the Mexican economy since the treaty took effect, this upward movement has not been enough to build a level playing field for Canadian and American laborers.  In the Mexican productive sector, wages have had a real decline of almost fifteen percent during the last decade, while the salaries of US manufacturing workers have risen at an average rate of just below nineteen percent. Taking this data into account there are 5 reasons that U.S. President Donald Trump wants to see salaries in Mexico rise.

Manufacturing Salaries in Mexico: Very Low

The present US government believes that Mexico’s low manufacturing salaries are the primary reason why many of the country’s private sector decision makers are opting to move jobs to Mexico.

United States Department of Labor information demonstrates that at the end of 2016, manufacturing job salaries reached an average of US $20.44 an hour, while Canada’s average maximum manufacturing wage was recorded as being US $18.7.  The result is that in 2016 Mexican manufacturing wage represented only 26.6% of the United States’ and 23 percent of the Canadian.

Minimum Wage: Even lower

When the North American Free Trade Agreement came into effect in the early 1990s, the minimum salary in Mexico was equivalent to about 5 US dollars per day, while in the United States the minimum salary was US $34 for every 8 hours worked.  This means that when the free trade pact began, Mexican minimum wage workers earned just fourteen and one-half percent of what US workers earned in dollar terms.

In 2017, the status quo has not changed greatly.  Those who earn the minimum wage in Mexico today earn eighty pesos per day.  This means that their income rises to only US $4.46 a day.  This shows a 9.3% reduction since 1994.   Currently, a Mexican that earns this salary in Mexico collects only 7.7% of what an American worker earns in dollar terms.  The minimum wage in the US has stood at US $7.25 since 2009.  This represents US $58 for an 8-hour workday.

A Limited Wage Recovery

Although the Mexican minimum daily salary has risen significantly, primarily because of yearly adjustments (from 15.27 Mexican pesos a day to 80.4 pesos), this nominal growth has not been sufficient to match those of Canada and the United States because of Mexico’s depreciation of its national currency.   Due to the fact that salaries in Mexico have not grown as quickly as those in the United States and Canada, for a vast percentage of the population, living standards have not improved greatly since 1994.  The Trump administration sees a higher standard of living in Mexico as an important factor to lessen undocumented immigration to the United States.

The Lowest Wages in Latin America

Mexico’s minimum wage is not only low when compared to those of its North American Free Trade Agreement trading partners, but is also reduced in when compared to workers’ wages in the other Latin American nations. For example, Mexico’s minimum wage is forty-four percent of that of Brazil and is only twenty-seven percent of what laborers in Argentina earn. As a point of a comparison with a country outside of Latin America, Mexico’s minimum wage is only sixteen percent of Spain’s.

Purchasing Power

Although it is generally agreed that low wages are a limitation on its workers, it can be said that the country is “cheap” to reside in compared to other countries. The purchasing power in Mexico is higher than in some Latin American nations due to the reduced prices of several products. Although this is the case, the Trump administration points out that low wages in Mexico prevent its citizens from buying US imports, therefore, creating a greater trade imbalance between the two countries.

The Tecma Group of Companies provides a continuing series of articles on subjects such Salaries in Mexico on its blog at http://tecma.com