The siren song of investing in Mexico is increasingly captivating manufacturers around the world. Mexico is now the leading source of goods imported to U.S. But why the sudden surge of interest in this vibrant Latin American nation? With its close proximity to the massive United States consumer market, low labor costs, numerous free trade agreements, and attractive government incentives, Mexico offers compelling advantages that continue to draw investors in droves. Let's explore why investors flock to Mexico and what makes it a hotspot for manufacturing investment.

1. The Allure of Investing in
Mexico: Why Investors Are
Flocking to Mexico for
Manufacturing
2024

2. 2
Overview
The siren song of investing in Mexico is increasingly captivating manufacturers
around the world. Mexico is now the leading source of goods imported to
U.S. But why the sudden surge of interest in this vibrant Latin American
nation?
With its close proximity to the massive United States consumer market, low
labor costs, numerous free trade agreements, and attractive government
incentives, Mexico offers compelling advantages that continue to draw
investors in droves. Let's explore why investors flock to Mexico and what
makes it a hotspot for manufacturing investment.

3. 3
Favorable Location and Logistics
One of the key reasons domestic and foreign investors are investing in Mexico
is its highly convenient logistics location. Mexico shares a nearly 2,000 mile
border with the United States, which gives it easy overland access to the
world’s largest economy. This allows for simpler transportation logistics and
faster market speed.
Goods can often reach their U.S. destinations within a day or two by truck or
rail from Mexico’s industrial regions. At the same time, Mexico offers sea
access to Asian and European export markets through major ports on the
Pacific Ocean and Gulf of Mexico. Its proximity makes trade simpler and
quicker than manufacturing further away.

4. 4
Favorable Location and Logistics
“Nearly two-thirds of the containers reaching ocean ports on the West Coast
of the United States are destined for the middle of the country and the East
Coast — regions reached more easily by rail and truck from Laredo, Mr.
Montemayor said.
Already, some American companies importing goods from Asia are bypassing
the docks in Southern California and shipping instead to Manzanillo, on
Mexico’s Pacific coast. From there, they move containers north to Laredo en
route to destinations across North America.”
The New York Times -
https://www.nytimes.com/2023/01/05/business/us-mexico-trade-
laredo.html

5. 5
Lower Manufacturing Costs
Another major attraction
drawing investors’ to
investing in Mexico is
Mexico’s relatively low
production costs, especially
labor. While Mexico’s wages
have increased gradually,
manufacturing workers still
earn far less than comparable
U.S. employees. Everything
from factory salaries to
industrial electricity rates
remains low in Mexico.
Source: Statistia

6. 6
Lower Manufacturing Costs
Cost Advantages Include:
• Inexpensive labor force due to Mexico's developing economy
• Lower facility construction and land costs outside urban centers
• Reduced transportation expenses when shipping to U.S. customers
• Cheaper industrial energy rates in Mexico driven by government subsidies
This cost advantage allows investors to manufacture goods at substantially lower prices in
Mexico versus the United States or other developed countries. Companies can then export the
finished products duty-free to the U.S. market across the border.
Manufacturers estimate 15-25% production cost savings in Mexico over equivalent U.S.
facilities. For labor-intensive industries in particular, this difference is even more significant.
Hundreds of thousands of manufacturing jobs have shifted from the U.S. and other developed
markets to Mexico over recent decades.

7. 7
Investing in Mexico: Preferential Trade
Agreements
Mexico also appeals to manufacturers thanks to its numerous free trade
agreements with major economies globally. Most notably, it is a member of
the United States-Mexico-Canada Agreement (USMCA, formerly NAFTA). This
eliminates most tariffs on goods traded between Mexico, the United States,
and Canada.
Given the size of the U.S. consumer economy next door, duty-free exports
represent an enormous incentive. American demand accounts for over 70%
of Mexican exports annually. Companies located in Mexico can ship finished
products to U.S. customers without worrying about export taxes or quotas.

8. 8
Investing in Mexico: Preferential Trade
Agreements
Beyond the USMCA free trade bloc, Mexico also has agreements with:
• European Union
• Japan
• Israel
• Central America
• Chile
• Colombia
• Peru
Taken together, these pacts give Mexico manufacturers barrier-free access to
markets representing over 60% of global GDP. This trade advantage attracts
export-oriented industries. Note: Mexico does not have a trade agreement
with China.

9. 9
Investing in Mexico: Preferential Trade
Agreements
“Mexico decided to temporarily increase tariffs of between 5 and 25 percent
on a total of 392 products for countries with which it does not have a free
trade agreement, including China. The tariffs, which were put in place on
August 16, impact around 90 percent of Chinese exports to Mexico, and will
remain in effect until July 2025."
https://thediplomat.com/2024/01/why-is-mexico-putting-tariffs-on-chinese-
imports/
The Diplomat -

10. 10
Government Incentives
Mexico has emerged as a magnet for foreign direct investment (FDI) in
manufacturing, particularly from neighboring US companies seeking to
nearshore operations. This surge isn't without reason: Mexico offers a potent
cocktail of attractive incentive programs at both federal and state levels,
enticing manufacturers to set up shop south of the border.

11. 11
Government Incentives
Beyond the federal level, individual Mexican states offer additional sweeteners:
• Land Grants and Discounts: States may offer discounted or even free land for qualified
investors, reducing setup costs.
• Tax Incentives: States can supplement federal tax breaks with their own programs, further
lowering the tax burden.
• Training Programs: Some states provide workforce training programs, helping manufacturers
find skilled labor.
• Cash Grants: In specific cases, states may offer direct cash grants to attract large and
impactful investments.
Specific incentives depend upon the industry, type of facility, and location chosen in Mexico.
Additional perks are provided to investors meeting certain minimum investment and job creation
thresholds. This further lowers startup costs for manufacturers and improves returns on invested
capital.

12. 12
Booming Border Region Manufacturing
One area that has become exceptionally popular for new plants is the Mexico
side of the U.S.-Mexico border. Major border cities like Matamoros, Tijuana
and Ciudad Juarez have seen massive manufacturing base expansions
catering to export-focused industries.

13. 13
Booming Border Region Manufacturing
Border zones appeal due to:
• Just-in-time logistics enabling tighter inventory control
• Lower inland Mexican transportation costs
• Easy access to U.S. managerial and technical talent
• Ability to maintain U.S. infrastructure links like energy grids
Dubbed the “Factory of the World”, Matamoros alone has attracted over
150 manufacturing facilities within competitive sectors like automotive,
electronics, medical devices, and aerospace products. With new high-tech
plants opening each year, the momentum of the economy remains strong.

14. 14
Booming Border Region Manufacturing
In particular, Northern Mexico has benefited from its proximity to the US. The
region already enjoys strong economic links with US border states, and these
ties will only strengthen if the US ramp up nearshoring. Investments data of
companies planning to shift their supply chains to Mexico suggest this is
already happening.
ABRDN Investments –
https://www.abrdn.com/en-us/investor/insights-and-research/mexico-the-
key-beneficiary-of-us-nearshoring

15. 15
Investing in Mexico: Promising Long-Term
Outlook
International corporations and Mexican domestic firms will likely ramp up
investing in Mexico's industrial capacity for years. Despite the uncertainty
created by the COVID pandemic, manufacturing conditions remain extremely
positive.
Mexico’s large youth population ensures an abundant worker pipeline even as
costs rise. Its proximity to key North American and global trade powers makes
it impossible for competitors across Asia to physically replicate. Generous
incentives also appear politically sustainable regardless of election outcomes.
Though risks like security, corruption, and potential U.S. policy shifts exist,
manufacturers regard Mexico’s advantages as outweighing these concerns.
With most industry metrics pointing upwards into 2030, the country seems
primed for another decade of surging foreign direct investment inflows
seeking a dependable export platform to lucrative markets.

16. 16
Investing in Mexico: Promising Long-Term
Outlook
“So far, the nearshoring trend has seemingly resulted in higher foreign direct
investment in the Latin American region. For example, Mexico reported a 12
percent increase in FDI for 2022, and the highest investment figure of the past
seven years.
This has resulted in higher demand for industrial space in the region. The
Mexican Central Bank reports that the view among large corporations is that
the greater impact of nearshoring is yet to be seen. Most industrial companies
expect the increase in demand to be reflected between 2024 and 2025, and
many survey participants expected the benefits to be observed after 2026.”
https://www.whitecase.com/insight-our-
thinking/latin-america-focus-fall-2023-
unlocking-opportunities
White and Case –

17. 17
Conclusion: The Future Beckons: Investing in
Mexico's Potential
So, is investing in Mexico a surefire bet? Not necessarily. But for manufacturers
seeking a strategic location, competitive costs, and a skilled workforce, it
presents a compelling opportunity. By carefully considering the challenges and
leveraging available resources, companies can tap into Mexico's vast potential.
They can also reap the rewards of a thriving manufacturing ecosystem.

18. 18
NovaLink Nearshore Manufacturing
6665 Padre Island Highway Suite B
Brownsville, TX 78521
(956) 621-7362 contact@novalinkmx.com https://www.linkedin.com/company/novalink
www.novalinkmx.com