The George W. Bush Institute created the North America Competitiveness Scorecard as a tool to compare the competitive position of the United States, Canada, and Mexico, as a region, relative to other major economic regions and countries with large economies. In releasing the scorecard in November 2015, the Institute gave Mexico a C grade overall (Canada and the US received As) across five metrics tracked by the World Bank, World Economic Forum, Fraser Institute, and the Heritage Foundation/Wall Street Journal, with the highest grade in the category of “investment environment.”
“Mexico rates highly on measures of ease of obtaining credit and freedom to trade internationally, and is one of the most promising emerging markets in the world today, thanks to the far-reaching economic policy reforms of the past several years,” said the scorecard.
In terms of room for improvement, all three nations have some things to work on: “The US must improve its fiscal responsibility, reduce its relative indebtedness and restore confidence in its long-term macroeconomic outlook,” said the scorecard. “Above all else, Mexico needs to improve rule of law and reduce corruption. Canada lags in innovation and technology transfer and is hampered by cumbersome business regulations.”
Following is an abridged version of early April commentary from the Hon. Antonio Garza, the retired US ambassador to Mexico who now serves as counsel in the Mexico City office of global law firm White & Case LLP. Garza also is chairman of Vianovo Ventures, a management consultancy with a focus on cross-border business development.
This past month, Mexico’s civil society groups handed the Senate president a new piece of anti-corruption legislation — the Ley3de3. The citizen-led legislation looks to force public officials to disclose tax information and possible conflicts of interest, and increases the punishment for acts of corruption. After a widespread media campaign, the bill received 291,467 signatures (more than double the 120,000 signatures necessary to get it onto the legislative table), representing a new path for the country’s civil society to influence the anti-corruption agenda.
There have also been steps forward for Mexico’s energy reform. This past week, the Federal Electricity Commission (CFE) held its first long-term electricity tender with ultimately 11 companies (out of 69 bidders) winning clean energy certificates and electricity contracts. The government’s goal is to have clean energy contracts producing 5 percent of the country’s electricity in the next two years. Meanwhile on the oil and gas side, the reform is also continuing apace, despite Moody’s downgrade of Pemex’s credit rating (along with Mexico’s general outlook) this past week due to its precarious financials. The next tender will be for deepwater exploration and production, and is scheduled for the first week in December.
— Antonio Garza
An open-trade philosophy, proximity to US, South American and Canadian markets, and cost-effective and highly-skilled labor are all factors in favor of Mexican manufacturing. Yet despite growing awareness of Mexico’s advantages, many manufacturers have hesitated to establish their own production footprint in the country. The rationale behind this sentiment is explored in a recent report “Mexico’s Automotive Manufacturing — Incentives & Barriers,” based on a survey conducted by Entrada Group, a US-based company that helps manufacturers quickly establish their own highly productive operations in Mexico.
According to industry analysts, approximately 40% of North American auto manufacturing jobs are in Mexico. The nation is quickly becoming a hub for international OEMs from the U.S., Europe and Asia. For example, in 2014, BMW announced construction of its new plant in San Luis, Potosi, for the 3 Series, with an estimated launch in 2018. This March, Ford announced plans to build a $1.6 billion new car plant in San Luis Potosi, creating 2,800 jobs by 2020.
Further, Mexico remains a very cost-effective production location, primarily due to affordable and highly-skilled labor. Depending on the region of Mexico, hourly labor rates for indirect workers can rival hourly costs in parts of China, according to a study by Boston Consulting Group.
Entrada Group Survey Reveals Common Barriers to Mexico
While these strengths of Mexico manufacturing are well known, common obstacles keep some producers from entering Mexico. These obstacles are the main focus of Entrada Group’s survey, conducted late in 2015.
Survey respondents were asked about their priorities and experiences, as well as their perceptions, about operating in Mexico. Collectively, their responses illustrate some common opinions about Mexico that don’t always match reality on the ground.
And while respondents currently lacking Mexico operations are deterred by a broad array of barriers to entry (from security to recruitment), no single concern dominates. These add up to a net feeling, particularly for smaller companies, that entry into Mexico is too risky and daunting. The top concerns respondents cited were security, lack of “Mexico know-how,” and talent shortages, as the report details.
Opinions of Producers Already in Mexico
Another key finding of the survey came from producers already established in Mexico. Nearly 90% of this group indicate a strong supply base is “very important.” Yet only 17% of these respondents rate Mexico’s supply base as “excellent,” with nearly a quarter considering it “poor.”
This suggests plenty of room for improvement with respect to Mexico’s in-country supply base, as well as plenty of opportunity for suppliers that are considering establishing their own Mexico operations.
Opportunity for Expansion
Another key finding in the survey pertains to customer makeup for Mexican-based producers. Respondents indicate they produce for customers from a range of industries, not exclusively within the auto sector. Mexico hosts a strong network of OEMs and large Tier 1 suppliers across a wide range of industries. To stay ahead of ever-changing free-trade requirements, these companies aim to increase their percentage of value-added services/production in Mexico. In other words, suppliers still contemplating a production footprint in Mexico will find opportunities in other sectors outside of automotive (industrial, aerospace, medical device, etc.).
The benefits that Mexico offers to manufacturers are clear: Competitive wages, growth prospects thanks to an open-trade philosophy, reliable infrastructure, proximity to the U.S., an educated workforce and a growing supplier base. These factors combine to make Mexico a location any manufacturer seeking growth has to consider. To download a copy of the complete report, visit www.entradagroup.com and browse to White Papers.
Ware Malcomb, an award-winning international design firm, and Corporación Inmobiliaria Vesta, S.A.B. de C.V. (“Vesta”), a leader in the development of industrial buildings and distribution centers in Mexico, in March announced construction is complete and certifications are in progress on the new Vesta corporate headquarters located at Arcos Bosques in Bosque de las Lomas in Ciudad de México, Mexico. Ware Malcomb provided full service interior design, branding and construction management services for the project.
The 900-sq.-m. (9,688-sq.-ft.) project is pursuing LEED ID+C Platinum certification from the U.S. Green Building Council, as well as WELL BUILDING STANDARD® Gold certification from the International WELL Building Institute, the first tenant improvement project in Mexico to be built to this specification. WELL is the world’s first building standard focused on human health and wellness, setting performance requirements in seven categories relevant to occupant health in the built environment.
“Our new corporate headquarters reflects our brand, quality, high service standards, contemporary aesthetics, and dedication to excellence,” said Lorenzo Berho, chairman and CEO of Vesta.
“It is an exciting opportunity to design the corporate headquarters of not only one of the most important developers in Mexico, but our first client here. We have worked with Vesta over the past 10 years, and continue to work with them throughout Mexico,” said Andres Galvis, regional director of Latin America for Ware Malcomb. Ware Malcomb recently completed the design of 10 industrial buildings for Vesta across Mexico in Tijuana, Queretaro, Guanajuato, Puebla and San Luis Potosi, totaling over 150,374 sq. m. (1.6 million sq. ft.).
Galvis also noted that “as the first tenant improvement project in Mexico to seek WELL certification, along with LEED, this building is an important symbol of the future of commercial construction across the country.”