H&A Global Outlook - Mexico Update Sping 2016

H&A GLOBAL
OUTLOOK
EMERGING MARKET
TRENDS IN MEXICO
SPRING 2016

© 2016 Hickey & Associates. All Rights Reserved. 2
H&A GLOBAL OUTLOOK - MEXICO SPRING 2016
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CONTENTS
4 Introduction
5 Market Trends
7 Sector Trends
8 Key State Focus

As the economy in the United States continues gaining strength, Mexico is moving right along, too.. Outside of the
automotive sector, recent reforms in energy and telecommunications have generated substantial investment in the country.
Due to a temporary constraint on labor supply, wage rates may continue to see an increase, but given the abundance of
young people coming into the market and measures to eliminate the informal economy, this should not be a permanent
issue, leaving room to maintain competitiveness into the future. To continue the economic sucess for the long term,
political corruption and application of the law will need to progress further.
The following H&A Global Outlook report provides a brief overview of key location factors H&A examines on behalf of our
clients. At H&A, our team of seasoned professionals and market experts work to identify the lowest cost, highest skilled,
and most efficient workforce that meets the needs of our clients, all while being a cost-effective, operationally-sound
marketplace.
INTRODUCTION

ECONOMIC GROWTH
According to the Organisation for Economic Co-operation and Development (OECD), Mexico´s gross domestic product
(GDP) projected growth for 2016 is 2.9%. The projection is effectively more than 50% that of the USA (+1.9%), and significantly
higher than Brazil (-4%). Mexico’s unemployment rate is officially estimated at 3.8%, which is the lowest in the last five years,
although it does not account for the shadow economy.
Government debt ratio to GDP is at is at 43.2% which makes it manageable, providing financial stability for the foreseeable
future. GDP per Capita at Purchasing Power Parity is $18,146 USD GDP. That is 20% higher than that of Brazil and 46% higher
than that of China. In all, the economy is looking reasonably well this year.
POPULATION DEMOGRAPHICS - AGE
With a territory approximately three times the size of Texas, Mexico has a population slightly over 120 million people. Mexico
is the most populous Spanish-speaking country in the world and the third largest in the Americas, following only Brazil and
the United States. Mexico’s population is fairly young, with 27% under 15, and 54% under 30, which makes Mexico a prime
opportunity for investment. Not only is the country’s consumer base set to grow significantly, the sizable labor force to come
puts downward pressure on wages and will lead to a strong pool of workers, making it a very attractive opportunity for
multinational employers from all over the world.
KEY MARKET TRENDS

EDUCATION
The critical factor of education is challenging in Mexico. Not only is there still a long way to go, the statistics vary greatly.
As an example, according to the OECD, Mexicans can expect up to 14.4 years of education between the ages of 5 and 39.
Mexico´s percentage of adults that have completed upper secondary education is half the 75% percentage of the OECD. The
average student in Mexico scored 417 out of 600 in reading literacy, math and science, the lowest rate for an OECD country,
besides Brazil´s 402 score. The recent federal reforms on Education will eventually produce better results, but Mexico still has
a long way to go regarding education.
UNESCO Institute for Statistics - World Development Indicators
EMPLOYMENT
In Mexico today, the population over 15 years old is 88 million. The labor force, according to the Instituto Nacional de
EstadÍstica y GeografÍa, is 52 million people, which comprises 43% of the total population, compared to 49% in the United
States. Unemployment is at 4.23% of labor force, leaving 2.2 million available unemployed workers. These numbers do not
account for the informal sector, also known as the shadow economy that involves transactions for services and goods paid
in cash that do not declare taxes. Recent reforms in the taxation and banking systems are in place to eliminate the shadow
economy, hoping to motivate those informal workers to join the formal economy. This represents a clear opportunity for
employers and will result in a more extensively available labor force and a larger tax base.

LABOR COSTS/PRODUCTIVITY
General Minimum wage in Mexico is $0.49 USD per hour, lower than China, Argentina, Brazil and Colombia. According to
the Mexican Secretariat of Labor & Social Welfare, Mexico´s average daily wages in manufacturing, including benefits and
social security, are around $2 USD per hour. By comparison, wages in manufacturing in the United States are approximately
$20 USD per hour, setting Mexican wages at nearly a tenth of those of their northern neighbors. Regardless of the differences
in wages and education between the two countries, productivity (the real value of output produced by unit of labor during
a certain time) is estimated at 112 in Mexico, compared to 105 in the United States, making it very attractive to relocate
manufacturing facilities down to Mexico.
MIGRATION/POPULATION DENSITY
Mexican immigration to the United States has been steadily declining since the Great Recession, thanks to improved
educational and economic opportunities in Mexico and ever-tougher border enforcement. According to the US Census
Bureau, there are around 35 million people in America listed as being of full or partial Mexican ancestry. This represents about
two thirds of all Hispanics and Latinos in the United States. Another remarkable migration movement is the massive internal
migration from rural to urban areas and from the impoverished south to north and central Mexico, where the multinational
corporations, particularly the automotive industry, have been growing steadily for years
.
SECTOR SPECIFIC TRENDS
MANUFACTURING SECTOR
The primary reason for investing in Mexican manufacturing facilities has been its proximity to the United States, free trade
agreements, and the low cost of labor. While wages in Mexican pesos have been increasing over the years, an appreciation
of the USD to the MXN has actually made it cheaper for international corporations. On the other hand, the Mexican
manufacturing labor force has been steadily increasing its productivity as more workers incorporate into the formal economy
and get the proper training. Currently, 15% of employed persons are in the manufacturing workforce, just behind retail trade
and services and public administration.
AUTOMOTIVE SECTOR
Mexico produced 3.4 million cars and light trucks in 2015, exporting
82% of the supply, with two thirds sent to the U.S. Brazil produced
under 3 million in the same period, losing its place as the automotive
manufacturing leader in Latin America. The automotive industry in
Mexico has not only attracted American companies, but Asian and
European, as well, including Nissan, Volkswagen, BMW, Audi, Kia,
Honda, and Mazda. In all, there are approximately 700,000 automotive
industry jobs in Mexico, and the number continues to increase as
with new assembly plants being built.

MARKET TRENDS - STATE COMPARISON
To compare several key manufacturing regions in Mexico, H&A provided an overview of the market trends in five states in
the following pages.
TAMAULIPAS
NUEVO LEON
CHIHUAHUA
BAJA CALIFORNIA
SAN LUIS POTOSÍ

BAJA CALIFORNIA
Baja California is a mature manufacturing destination compared to the rest of the country. However, extreme weather and
poor infrastructure make it challenging for newcomers. Nevertheless, the proximity to California and location on the Pacific
Ocean make it a highly desirable place for American and Asian manufacturers. Increasing wages and security have been
concerns in recent years for the region.
LOCATION
Baja California borders with California, and was one of the first “maquiladora” cities in the country. Although the State is
relatively sizable (27,000 sq. mi.), the population and the manufacturing activity is highly concentrated in the bordering cities
of Tijuana and Mexicali. Weather is very dry and extreme, ranging from very hot during the day to freezing cold at night.
Precipitation is only 200 mm a year.
POPULATION
Total population is 3.1 million people, with 92% concentrated in urban areas. Tijuana and Mexicali have a large floating
transient population from Central America and southern Mexican States, many hoping to cross to the United States.
ECONOMY
The state’s GDP represents 2.8% of the national total. In the past couple of years, Baja California has been experiencing a
slow growth rate of under 1%. Inflation in Tijuana and Mexicali has been around 2% (below the national average). Strategic
sectors are: aerospace, electronics, medical appliances, biotechnology, information technology, medical, transportation and
wine. The World Bank classified Baja California almost at the bottom of their report on easiness of doing business in Mexico.
Exports reached $33 billion USD, accounting for almost 10% of the national total. Manufacturing of computer hardware,
communication, measurement and other equipment, electronic components and accessories represented most of it.
EDUCATION
Average 9.1 years of schooling, slightly over the national average. Analphabetism is at 2.3%, a third of the national average.
EMPLOYMENT
Labor force is estimated at 1.5 million people, with an unemployment rate at 4.1% in 2015.
LABOR COST
Labor costs in Baja California are similar to that of Chihuahua and Tamaulipas, the other border states with Maquiladora
programs.
Population is highly concentrated in the border cities of Tijuana and Mexicali. Density in the rest of the state is very low.

CHIHAUHUA
The state in general, and Ciudad Juarez in particular, were among the first in the Maquiladora phenomenon, allowing
for easy crossing of American management to run manufacturing facilities in Juarez. The State of Chihuahua is a mature
manufacturing destination that has taken advantage of location for many years. Disadvantages are the weather, arid
topography and security.
LOCATION
Located in Northern Central Mexico, it borders with New Mexico and Texas. Largest State in the country (95,543 sq.
miles). Main Manufacturing city is Ciudad Juarez, across from El Paso, Texas. Very dry and extreme weather, with average
temperature ranging from extreme hot to freezing cold given its location in a desert area. Annual pluvial precipitation is 500
mm, accounting for a greener south.
POPULATION
3.4 million. Average age is 25 years. Ethnic composition comprises 60% whites (including Spaniards, Dutch, German, French
and Middle Eastern) and the rest Mestizo with a slight percentage of Amerindians. Juarez has a transient population of
Central Americans and peoples from Southern Mexican States hoping to cross the border.
ECONOMY
Chihuahua’s GDP represented 2.8% of the national total. Manufacturing industry in Ciudad Juarez for export is by far the
strongest. With $42 billion USD in exports, manufacturing makes Chihuahua the number one exporting state in the country.
Economy registered a 2.7% growth, with primary industries decreasing, but manufacturing growing over 3%. Inflation
was under 2.7% last year, below the national average of 3.06%. Foreign Direct Investment at $1.1 billion USD represented
5.1% of the country’s total. Strategic sectors are tourism, mining, agribusiness, automotive and auto parts, electrical and
electronic, life sciences, information technology and aerospace.
EDUCATION
Average 9.1 years of schooling, slightly over the national average. Analphabetism at 3.1% (less than half the national
average).
EMPLOYMENT
Labor force in manufacturing is mostly concentrated in Ciudad Juarez, which has a total 1.5 million population and a labor
force of 531,000. According to the Ministry of Economy of the State, absenteeism in Juarez is around 3.7%, turnover around
3.7% and unemployment around 3.5%
LABOR COST
The Secretary of Economy of the State estimates manufacturing labor cost at $3.25 USD per hour, considering 2,161 hours
a year (45 hours a week).
Being a border state, it has a constant migration flow with the United Sates. Migrants include workers from Southern States
and Central America, hoping to cross to the United States. Given the size of the state and a relatively small population,
population density is the lowest in the country.

NUEVO LEON
The State of Nuevo Leon enjoys a higher standard of living than the comparable states. Education and productivity are
top notch and competing for talent generates higher than typical wages. On the other hand, quality of life is better than at
compared border manufacturing cities. Among advantages, we can list the region’s consolidated industrial clusters, easiness
to attract national and foreign talent, and its pipeline of students coming from their prestigious universities and technical
schools.
LOCATION
Nuevo Leon is a northern central State. It has a narrow border with the United States, with the rest of the state stretching
south. The primary manufacturing area is the metropolitan area of Monterrey, considered the strongest and more traditional
industrial city in Mexico. Weather is dry and precipitation is around 650 mm. Temperature can also be extreme, but it
averages around 70 Fahrenheit.
POPULATION
Total population is around 4.6 million people, with 95% concentrated in urban areas (mostly the metropolitan area of
Monterrey). Long established society with migration from surrounding states, typically attracted by esteemed universities,
technical schools and work.
ECONOMY
The state’s GDP represents almost 7.1% of the country, making it the strongest economy among those compared in this
study. Secondary and tertiary activities have been growing over 5% in the past couple of years. Inflation is close to the
national average at 2.9%. Strategic sectors are: aerospace, automotive, biotechnology, appliances, specialized medical
services, software, food, nanotechnology, sustainable housing and interactive media. The World Bank’s report on Doing
Business, ranked Nuevo Leon 16th for easiness of doing business in Mexico. According to the National Institute of Statistics
and the Secretary of Economy, exports represented $25 billion USD, representing 7.9% of the national total. Manufacturing
represents most of it with transportation equipment as the most relevant sector, followed by appliances and energy generation
equipment.
EDUCATION
Average years of schooling in the state is at 10, above the national average. Analphabetism is under 2%. Monterrey has
some of the most prestigious universities and technical schools in the country, attracting students from all across the country
and other Latin American nations. According to the Federal Secretary of Economy, the state ranks second on a national basis
on science, technology and innovation and communication and information technologies.
EMPLOYMENT
Nuevo Leon’s labor force is estimated at 2.2 million people, with an unemployment rate at 4.7% last year.
LABOR COST
Labor costs are higher in Monterrey than in the other cities represented in this sample. On the other hand, education and
productivity are also higher.
High concentration of population in the metropolitan area of Monterrey.

SAN LUIS POTOSÍ
Being in a strategic location between the three largest markets in Mexico - Mexico City, Monterrey and Guadalajara -
absence of security issues, good communications, reasonable weather and a sizable population have made San Luis Potosí
an attractive destination for multinational corporations looking to establish a presence in a friendlier and more affordable
location, as compared to the border cities. The state’s success is now putting pressure on the availability of labor and rising
wages.
LOCATION
San Luis Potosí is located in Central Mexico in the “Bajio”. It has an area of 23,600 sq. mi. (slightly smaller than Tamaulipas).
Average temperature is a comfortable 70 Fahrenheit with an annual pluvial precipitation of 950 mm that comprises a more
tropical area known as “Huasteca Potosina”.
POPULATION
Total population is 2.5 million people, with 64% living in urban areas.
ECONOMY
The state’s GDP represents approximately 1.9% of the national total. In the past couple of years, it has registered an
accelerated growth of 4.4%, with inflation at 3.3% (above the national average). Outside of manufacturing, the state’s
economy is based on mining (silver), which was the historical foundation of the state. San Luis Potosí is considered one of
the friendliest states to do business in Mexico, ranking 4th by the World Bank. Exports In 2014 reached $7.7 billion USD, with
manufacturing representing over 90%, particularly automotive and auto parts.
EDUCATION
Average 8.6 years of schooling, with 6.6% analphabetism (below the national average). Nevertheless, in urban areas, San
Luis Potosí has a reasonable pool of students enrolled in upper levels of education, both in technical schools and universities.
Out of 92 universities and technical schools in the state of San Luis Potosí, 60 are located in the metropolitan area of San
Luis Potosí.
EMPLOYMENT
Labor force is estimated at 1.2 million people and unemployment is rated at 3%. The manufacturing activity is concentrated
in the metropolitan area of the San Luis Potosí.
LABOR COST
Labor cost information is not readily available, but high demand must be causing upward pressures, given the high
concentration in one single metropolitan area and the ongoing construction of the new BMW plant.
The state traditionally registers high migration to the United States. It has a sizable Amerindian population (around 11%).
Given that it is not a border state, it does not experience the same transient population as Chihuahua and Tamaulipas.

TAMAULIPAS
Tamaulipas is also a mature manufacturing state that has enjoyed the advantage of close proximity to the United States. The
state has a temperate climate and a diversified economy that includes a strong oil and petrochemical sector. Security has
been a challenge.
LOCATION
The state shares borders with Texas (Laredo, Brownsville and McAllen). Less than a third the size of Chihuahua (31,000 sq.
mi.). Climate is warm and sub-humid given its proximity to the Gulf of Mexico. Annual pluvial precipitation is at 780 mm.
Main manufacturing cities are Nuevo Laredo, Reynosa and Matamoros.
POPULATION
Total population 3.2 million, with 88% concentrated in urban locations (Nuevo Laredo has 373,000 people; Reynosa has
590,000 people and Matamoros 449,000 people).
ECONOMY
The state’s GDP represent approximately 3% of the national total. Manufacturing is the strongest component, but oil
and petrochemicals is also a key industry for the state. With $23 billion USD in exports, Tamaulipas is the 6th largest
exporting State in the country. Manufacturing accounted for over 90% of exports, with computer hardware, communication,
measurement and other equipment, electronic components and accessories representing 30.9%. Inflation was under 2.4%,
below the 3.06% national average. Strategic sectors are: chemicals and petrochemicals, automotive, appliance, machinery
and equipment.
EDUCATION
Average 9.4 years of schooling with 3.3% analphabetism (half the national average).
EMPLOYMENT
Labor force in the state is estimated at 1.5 million people, with a 5% unemployment rate. Manufacturing is distributed
between Nuevo Laredo, Reynosa and Matamoros.
LABOR COST
Given similarities, manufacturing labor cost in Tamaulipas is estimated at around the same than Chihuahua ($3.20 USD per
hour at 2,161 hours a year).
Similar to Chihuahua, there is intense crossing along the border. Migrants from Central America and Southern States hoping
to cross to the United States add to the labor force in border cities. Tamaulipas has a medium population density and a
reasonable distribution of the population across the state.

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H&A Global Outlook - Mexico Update Sping 2016

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