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Special Investment Report: Mexico's Labor Costs, Skill Keep Investment Up

With its low labor costs, skilled manufacturing work force, and proximity to the United States, Mexico is encouraging major companies to plant roots.

Mark Crawford (November 2010)
(page 3 of 3)
Aviation and Aerospace
Mexico's aerospace industry has grown from 100 manufacturers in 2004 to over 300 in 2009. Cessna, Bombardier, Honeywell, Zodiac, Safran, Goodrich, Triumph, GE, Bell Helicopter, Pratt & Whitney, Hawker Beechcraft, and Daher all have a presence in Mexico. Aerospace companies employ about 30,000 people and generated more than $3 billion dollars in exports last year.

Mexico ranks first in the world in attracting manufacturing investment in the aerospace sector, Deloitte says, with $33 billion dollars invested from 1990 to 2009. Deloitte also reports that the aviation sector will receive 2,500 billion pesos in loans in 2010.

Queretaro, which rapidly built its aerospace cluster after attracting Bombardier in 2005, is Mexico's best-known aerospace center, including large factories that produce aircraft parts for Boeing and Airbus. Four states - Baja California, Chihuahua, Nuevo Leon, and Sonora - have larger aerospace clusters than Queretaro's that also include manufacturing facilities. In Sonora, an aerospace cluster is rapidly growing in the border town of Nogales, including a new Daher factory that is expected to employ 1,000 people by 2012.

Electronics
Mexico's electronics manufacturing clusters in Tijuana and Guadalajara produce computers, mobile phones, televisions, stereos, and video equipment, as well as their components, including integrated circuits, light-emitting diodes, indicator panels, and cathode-ray television tubes.

Low operating costs and skilled labor continue to attract new companies such as Flextronics, the world's second-largest custom electronics manufacturer. Flextronics wants to move additional operations from China to Mexico, citing a 20 percent annual rise in labor and worker's compensation costs in China. And Foxconn is consolidating its electronic manufacturing operations in Juarez, which will require up to 3,000 new employees. Foxconn already has more than one million square feet in industrial buildings in the Jeronimo Industrial Campus and a labor force of over 12,500 people in Chihuahua.

Ready for Growth
The Mexican economy is projected to expand by a respectable 3.8 percent in 2011, according to government estimates, and will rise and fall with the U.S. economy. Its diverse mix of positive business attributes - low labor and operating costs, skilled manufacturing talent, close U.S. ties, and NAFTA position - continue to make it an attractive, low-cost country that brings major investments even in a down economy.

"The 25 percent devaluation of the peso (additional labor savings), the 20 to 25 percent decline in industrial lease rates in most markets, and shorter supply chain are combining to produce an even larger offshore advantage for Mexico," Swedback says. "While Mexico has been desired by manufacturers and logistics firms since 2000 for its near-shore advantage, it has emerged in 2009-2010 as the best-shore competitor. Its long history with foreign manufacturers has created a labor pool of experienced operators and mid-level Mexican managers who can launch and grow operations in all sectors, from garment operation to semiconductor packaging. The U.S. has developed a closeness to Mexico that goes far beyond physical proximity; the deep integration of the North American economy will continue to accelerate and proceed over the long term."
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