Top Three reasons European Manufacturers Need a Mexican Production Location
“What is the best way to develop a North America client base to help us stay competitive globally?”
This is one of the most common questions owners and C-level executives from European manufacturing companies ask as they aspire to increase global market share. The reason they’re asking is because they understand that their customers in North America increasingly expect their overseas-headquartered suppliers to produce within North America rather than deliver into the region from abroad.
Mexico fares very well as a North American production location, with cost and proximity as obvious advantages. But the other reasons motivating international manufacturers to look at producing in Mexico may not be as self-evident.
We’ve distilled these additional elements down to the top three to highlight some common advantages Mexico offers European manufacturers that lack a North America production location. All are based on the input of our clients in Mexico or on our discussions with European producers that have yet to establish Mexico operations.
Download our “Routes to Mexico” whitepaper on our website, to learn about the different options European manufacturers have for establishing Mexico production.
Reason #1: USMCA Ratification Looks Very Promising
The long period of uncertainty surrounding the future of what was once NAFTA appears to be over. Most analysts are optimistic about USMCA approval as of this writing, though the US Congress and new Mexican government have yet to assure passage. Should USMCA fail to be ratified, NAFTA rules would remain in place until a member country withdrew.
“All things being equal, the greater requirement for content originating in the USMCA region will put significantly more pressure on auto sector manufacturers that lack North America production.”
Overall, NAFTA isn’t substantially different from USMCA, the latter of which won’t affect most manufacturing sectors. However, the auto industry, for example, was closely scrutinised throughout the negotiations. Under USMCA, 75% of the components going into a car or light truck must be manufactured in Mexico, the US or Canada to qualify for zero tariffs. This is up from the 62.5% threshold under NAFTA. Thus, all things being equal, the greater requirement for content originating in the USMCA region will put much more pressure on auto sector manufacturers that lack North America production to establish a footprint in one of the three countries.
Reason #2: Mexico Offers a Proven Path for Growth
A Mexico production facility has given our EU-based manufacturing clients a foundation from which to develop new business in North America strictly by virtue of their presence in the country. International OEMs and Tier One/Tier Two companies manufacturing in Mexico always prefer to source product locally for many reasons, including cost savings, just-in-time delivery, shorter supply chains and storage cost savings. Furthermore, such companies prefer to work with an in-country supplier that holds key Mexico certifications such as IMMEX compliance.
Entrada Group clients operate under our IMMEX license and are fully compliant with all Mexico Customs laws, making it far easier for them to bid on projects.
John White, Executive VP of Telamon, a long-time Entrada Group client in Mexico, feels that the entrance of large companies into Mexico has opened doors for his company to supply product that may have otherwise been sourced abroad. “Many of our customers have put a footprint closer to our facility and that has helped us get in to broaden our portfolio and work with new companies we haven’t served in the past,” John said.
Reason #3: Mexico Provides A Cost-Competitive Production Hub for North America
Mexico attracts international manufacturers that are looking for quality suppliers to serve them within the country. An international OEM or Tier One supplier with Mexico production will always prefer to work with a trusted, local manufacturer rather than importing from abroad. This regional production approach is not unique to Mexico, as leading international manufacturers from all sectors have cost-competitive production locations in Europe, the Americas and Asia in order to solve the needs of clients in their backyard.
The experience of one of Entrada’s longtime Mexico-based clients illustrates this regional production concept well. Our client Premium Sound Solutions (PSS), a leading EU-based audio products supplier, needed to establish North America operations when its client BMW decided to only contract with suppliers located within the NAFTA region for servicing their US production facility in Spartanburg, South Carolina.
To satisfy its clients’ needs, PSS moved its production base from China to Mexico, joining Entrada Group’s 100,000 square meters-plus manufacturing campus in Zacatecas, Mexico. Within several years, PSS had not only kept and grown the BMW business, it had also secured new orders from both GM and Tesla due to its cost-competitive production location within the NAFTA region. In addition, PSS secured new business from Volkswagen Mexico and Audi Mexico, both of which preferred more locally produced content within the country, not just within the NAFTA region. This local-sourcing preference is becoming increasingly common among European OEMs in Mexico.
As our clients attest, Mexico gives them a huge competitive advantage. By offering customer proximity, a cost-competitive North American production location and free-trade access, Mexico production has helped Entrada Group’s clients expand over the years. Mexico’s burgeoning manufacturing sector should further bolster this growth.
For more information
Entrada Group guides international manufacturers in establishing and running their own cost-competitive Mexican operations. Our manufacturing support platform manages all your general and administrative services, reducing cost and risk, and generating long-term growth. Visit us at: www.entradagroup.com or www.entradagroup.com/de in German.