More investment is planned, as the country pursues a goal of ranking in the top 20 percent of the World Economic Forums Infrastructure Competitiveness Index, according to a logistics report by PwC.
This has been helping to drive aerospace, electronics, food processing and other advanced manufacturing companies such as the U.S. aircraft makers Honeywell and Textron to set up in Mexico.
American manufacturers have also worked closely with logistics companies to slash costs for moving inputs and finished products between their factories in Mexico and their Canadian and U.S. customer and supplier bases. The result? “Crossborder logistics in Mexico today are arguably the most efficient anywhere in the world because of the scale of the manufacturing that was moved there,” Price says.
Encouraged, Mexican companies have also outsourced everything from trucking to inventory and supply chain management, he adds.
There is more to be done, of course. “At times of peak demand, there are constraints in getting goods to market,” says Croche. “Consumption is growing but the number of truckers on the road is not keeping pace.”
Improvements in trade logistics could come from building more east-west transport capacity to take advantage of access to the Atlantic and Pacific. This would make it easier to expand exports to the rest of Latin America, its second-biggest market, as well as to Asia and Africa.
“Mexico is very dependent on the U.S. economy, and so the NAFTA negotiations could be an opportunity to become less dependent,” Gantier says.
While the government could try to widen the country’s trade ties, it is down to companies to step up sales beyond NAFTA.
For cars, planes and white goods, that may not make sense. The added cost for long-distance shipping would make it harder to compete with goods from markets closer to the customer.
For computer motherboards, mobile phones and other light products, however, a company can supply the world from one factory. Asia is the leader in these industries, and for Mexico to lure investment its infrastructure and logistics efficiency still needs to get better.
“Mexico will have to improve its competitiveness, in particular with better air infrastructure,” Price says. “The ability of Mexican airports to clear customs and move inventory in and around the airports is still a decade behind much of Asia,” he says. “Its port infrastructure is better, but its ability to move cargo domestically is not as competitive as it needs to be if you want to compete with Southeast Asia or China.”
The IT supplier base, too, would have to be convinced to move to Mexico from Taiwan, Thailand and Korea.
“This doesn’t happen overnight,” Price says. “If we have a resolution between Mexico and the U.S. [on NAFTA], we could see it happen. But not until then.”
While foreign investment in Mexico has increased over the past two decades, so have concerns about doing business there, such as a lack of well-trained engineers and steady reports of violent murders in states like Baja California, Chihuahua and Tamaulipas.
On security, Steven Dudley, co-director of InSight Crime, a Washington D.C.-based foundation that studies organized crime in Latin America, says Mexico is “relatively safe.”
The biggest risks are not from the big drug cartels, but the smaller criminal groups focused on contraband, kidnapping and theft. These groups, however, go after easy targets, not the larger companies with private security, he says.
Education-wise, graduation and literacy rates are reasonable in Mexico, Price says.
The problem is that universities “are not well equipped to produce graduates who are employable in the manufacturing sector,” he says.
To get around this, the automotive industry has banded together to form training centers for which the government is providing students with a subsidy for low-cost entry.
“Now Mexico produces a lot of mid-level technicians in the automotive industry as well as engineers, which is what they lacked in the past, and that was one of the greatest limitations of Mexico’s ability to grow in that sector,” Price says.
Could other sectors follow suit and bolster Mexico’s growth prospects for manufacturing? Price thinks so.
“I suspect that as other industries gain critical mass they will repeat that model,” he says. “After aerospace, the first that could probably do this is medical equipment, and then the IT sector.” — Charles Newbery