Bordering on a Boom: Mexico Manufacturing Builds a Future: "Made in Mexico" May Not Be the Most Common Label You See on the Back of Your Television or on Your Cellphone-Yet-But Mexico's Rapid Economic Growth Is Making the Country a Powerful Contender in the Global Economy

Article excerpt

The Economist forecasts that by the end of this decade, Mexico will probably be among the world's 10 biggest economies. The country currently is the world's largest exporter of flat-screen televisions, BlackBerry smartphones, and refrigerators, according to the Economist, and its automotive and aerospace industries are quickly expanding. A number of factors, both internal and external, are driving Mexico's manufacturing ascendancy. Mexico faces a number of economic challenges, but its gains in a number of measures reflect a positive, promising trend and a new outlook.

Mexican manufacturers multiply

Between 2001 and 2010, Mexico's economy grew by an average of 1.6 percent a year, less than half the rate of Latin American leader Brazil (which owed its strong economic expansion in part to its commodity exporting to China). However, in the last two years, the Mexican economy has grown faster than Brazil's, with Mexico's growth rate doubling Brazil's--4 percent to 2--in 2012 (see chart 1).

[GRAPHIC OMITTED]

Manufacturing is certainly a key component of the current and predicted growth, and foreign demand for Mexican-produced goods has been an important contributor to the continuing expansion of the country's manufacturing sector. The value of goods exported from Mexico is roughly equal to that of all other Latin American countries combined. As measured by the vast variety and sophistication of exported products, Mexico's economy is the most complex economy in Latin America and the 20th most complex in the world, according to Harvard University's Atlas of Economic Prosperity. (The Atlas defines "complex" as the amount of productive knowledge a country contains.) This complexity is one reason Mexico's per capita GDP is projected to be the world's 10th fastest growing between 2009 and 2020.

The most globally prominent industries in Mexico are medical devices, automotive, and aerospace. The auto industry is growing especially fast Mexico is now the world's fourth-largest exporter of automobiles. In 2011, Mexican automakers produced almost 2.6 million cars. That number rose to 2.9 million in 2012 and will reach 4 million a year once facilities currently under construction are completed, according to the Economist. Seven of the 10 world's largest auto manufacturers have production facilities in Mexico. These include Honda's $800 million plant in Celaya, a $550 million Volkswagen plant in Silao that opened in January 2013, and two plants scheduled to open later this year: Nissan's $2 billion plant in Aguascalientes and Mazda's $500 million plant in Salamanca. Mexico is already a strong export base for Nissan, whose Mexican facilities ship to the United States and more than 100 other countries around the globe, according to Bill Krueger, vice chairman of Nissan America (see chart 2).

[GRAPHIC OMITTED]

Additionally, more than 200 companies related to the aerospace industry operate in Mexico, many of them in the manufacturing hub of Queretaro, making it the 12th-largest exporter of aerospace equipment. And the country is the third-largest exporter of medical devices.

China's loss, Mexico's gain

Several prominent forces have fueled Mexico's manufacturing boom, including increased openness to international trade, China's ongoing loss of competitiveness due to rising wages and appreciation of the renminbi, the availability of skilled technical labor, the continuing rise in international logistics and transportation costs, and the geographic proximity to the world's largest market--the United States--at a time when swift responsiveness to market trends is vital.

Whereas Mexico's economy had been an import-substitution manufacturing economy that depended on domestic consumers for business, its openness to international trade has enabled it to become one that also relies on foreign markets for growth. In 1994, the North American Free Trade Agreement eliminated most tariffs between Mexico, the United States, and Canada, creating a continental market for Mexican goods. …