Commitment to Mexico Manufacturing-Despite the Political Rhetoric

Written by Henry Martin. Posted in FDI

International OEMs and Tier Ones continue to invest in Mexico manufacturing, despite much uncertainty from the new Trump administration and threats of heavy import tariffs. Amid such an environment, Mexico has shown more resilience than ever, and international companies continue to reiterate their commitment to Mexico, so they can benefit from the growth opportunities the country provides and ensure their competitive advantage in the North American export market. Henry Martin spoke with Doug Donahue, one of Entrada Group’s Principals and Vice President of Business Development, about what Mexico offers to foreign manufacturers and why many are proceeding apace despite an unclear future and outright hostility from the Trump administration.

Henry Martin:The current political climate in North America has turned the spotlight squarely on NAFTA. How could a treaty renegotiation affect Mexico manufacturing?

Doug Donahue: We certainly don’t know how NAFTA discussions will play out. But renegotiation, on its face, should not be viewed as the death knell for Mexico’s manufacturing sector. Much has changed since NAFTA’s implementation 23 years ago and updating the agreement to reflect today’s modern manufacturing realities could possibly benefit all three countries. For example, U.S., Canada and Mexico may find out that a restructured NAFTA makes their trade relationship even stronger. 

Those concerned about Trump modifying NAFTA to penalise Mexico imports should consider – Mexico is about more than just cost-effective manufacturing. Mexican consumers are also significant purchasers of U.S. products, particularly in the agricultural and professional services sectors. The Mexican government has made it clear that any punitive tariffs and or actions on manufacturing will result in less favourable terms for key U.S. exports from these sectors.

"Manufacturers that wait to see how NAFTA is resolved are missing out on the opportunities Mexico affords, while their competitors are gaining an advantage."

Henry Martin: With so much uncertainty surrounding NAFTA, why should foreign manufacturers even contemplate a Mexico presence?

Doug Donahue: Simply put, they can’t afford not to. Despite billions of dollars of investment over the past decade by leading OEMs, Mexico lacks a broad, robust supply base, within many sectors. Manufacturers that wait to see how NAFTA is resolved are missing out on the opportunities Mexico affords, while their competitors are gaining an advantage. It’s not easy to think and plan long-term, when we hear so much every day about funding for a new wall between the U.S. and Mexico and punitive tariffs.

But the companies that are eschewing that short-term rhetoric will ultimately be the ones to gain from a Mexico footprint. Smart, forward-looking manufacturers today are moving forward with their Mexico plans, following the many OEMs who preceded them. Why? Because the fundamental strengths of Mexico are still in place: proximity to U.S. and Canadian markets, cost-effective labor and an open, free-trade philosophy. Savvy companies know they need to be close to their customers. Mexico solves that need.

Henry Martin: How are OEMs reacting to the current NAFTA discussion?

Doug Donahue: Many, particularly European OEMs, have been vocal about their plans for growth in Mexico. For example, Volkswagen has spoken on the record about the fact that they have no plan to shift jobs or production from their Mexico plant. BMW has restated its commitment to its $1 billion plant in San Luis Potosí, Mexico, with production scheduled to begin in 2019. Siemens recently signed a declaration of intent with Mexico's economics minister to develop infrastructure and industrial projects worth up to $36 billion over the next 10 years, further cementing its Mexico ties.

Henry Martin: Do you have advice for manufacturers, particularly smaller ones, looking to launch Mexico operations?

Doug Donahue: Establishing new operations for the first time in any foreign country can be a daunting task. Many small-to-midsize manufacturers struggle with the essential question – Will we be able to make this work without taking on too much cost and risk? In many cases, OEMs and Tier One manufacturers are urging their suppliers to setup in Mexico but, despite having an established customer in the country, a lack of Mexico know-how still proves too great a hurdle for many companies.

That’s where working with a partner like Entrada Group, who takes responsibility for all general and administrative support, is invaluable. Partnering with us to set up and run ongoing Mexico operations gives manufacturers new economies of scale and enables them to leverage our 20 years of expertise in Mexico, substantially reducing their risk exposure. At our manufacturing campuses in Fresnillo, Zacatecas, and Celaya, Guanajuato, Entrada Group manages all non-production-related support for our clients, allowing them to solely focus on their core business, profitability and future growth. Specifically, on behalf of our clients, we are their Mexico entity of record, taking full responsibility for all aspects of their initial setup and ongoing operations in Mexico.

Our proven track record in Mexico, our strategically located campuses and our encompassing range of value-added services comprise Entrada’s Turnkey System for long-term growth, which provides our clients a shortcut to the benefits of Mexico manufacturing. In the end, our clients gain access to expertise and specialised staff they would be unable to provide on their own, enabling them to compete with larger companies.

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