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A strengthening economy, infrastructure improvements and a low-cost labor pool are among Mexico’s significant competitive advantages.
CHICAGO, Dec. 12, 2012 — An ever-improving supply chain infrastructure, a low-cost but increasingly skilled labor force and successful economic reform efforts combine to make Mexico an increasingly attractive target for cross-border industrial opportunities, according to new research by Jones Lang LaSalle (JLL). Mexico’s proximity to the huge U.S. consumer market will always be a major competitive advantage but Mexico compares favorably to China, an industrial powerhouse that is becoming burdened by escalating manufacturing costs and lengthy shipping lead times.
“As Jones Lang LaSalle has closely monitored the dynamics of Mexico in recent years, it has become clear that Mexico offers significant potential as a fast-growing industrial market,” said Rich Thompson, Managing Director and head of JLL’s Supply Chain & Logistics business. “There has been more than $200 billion invested in Mexico’s supply chain infrastructure since 2006, and double-digit growth in cross-border rail traffic between Mexico and the U.S. is expected to continue for years to come. Also, economic conditions in Mexico are more stable than in many other Latin American countries.”
Added Gerardo Ramirez, National Director for JLL’s Mexico Industrial & Logistics group, “Mexico offers many competitive advantages, including low labor costs, ample developable land at affordable prices and shorter shipping times compared to Asian markets. However, investors interested in Mexico are encouraged to begin evaluating opportunities sooner rather than later, because heightened demand for land and facilities is beginning to drive up prices.”
According to the report, Five reasons to consider Mexico for manufacturing and logistics, Central and Bajio region cities such as Mexico City, Guanajuato, Guadalajara and San Luis Potosi are peaking, while the majority of other nearby manufacturing centers are ranked as rising markets. Some markets near the U.S. border, including Chihuahua are falling in price, largely due to the stagnant U.S. economy and negative impacts of crime.
The Jones Lang LaSalle report, which also ranks the Top 10 Mexican markets for manufacturing and logistics, highlights five key reasons investors should look closely at Mexico’s industrial opportunities.1. Mexico is not China – and that’s a good thingA number of factors have combined to take the bloom off China as the world’s premier manufacturing location: The labor pool in China is becoming shallower due to the country’s one-child per family policy, labor costs are rising as workers demand higher wages, and manufacturing costs are increasing as land and energy prices escalate.
China also suffers from lengthy lead times needed to ship cargo to U.S. ports – 15 to 20 days compared with two to three days from Mexico to the U.S. via highways. These issues, along with the bureaucratic difficulties of doing business in China, place Mexico in a position to gain from China’s current manufacturing and labor challenges.
2. Mexico’s economy is strengthening; impact of crime is not significant in most markets Mexico’s economy has shifted into high gear in 2012, thanks largely to its manufacturing sector. Mexico is now the seventh leading auto manufacturer in the world and the second largest supplier of electronic products to the U.S. market.
“Mexico’s economy experiences mild inflation compared to other Latin American countries,” said Thompson. “Its economic indicators are largely favorable and the country’s growing foreign reserves reflect heightened investor confidence.”
The country’s ratio of debt to GDP is a low 27 percent, foreign reserves have hit a record high of $150 billion and the peso, formerly a perpetually shrinking currency, rose 7 percent against the U.S. dollar during the first quarter.
Crime, particularly drug-related violence, is less of an issue than commonly perceived. Although violence related to drug trafficking and organized crime rose by 11 percent in 2011, the problem is mainly a regional. Mexico City and the country’s fastest-growing logistics centers are not strongly impacted.
3. Mexico’s low-cost but high-skilled workforceWhile Mexico’s labor costs are lower than many of its global competitors, the skills of its workforce are rising. The pool of working-age individuals is approaching 62 million, and workers are becoming increasingly affluent and well educated, with the literacy rate now more than 93 percent.
Although its workforce is becoming more highly skilled and educated, labor costs are lower than the majority of the world’s industrialized countries. According to a 2010 U.S. Department of Labor Survey, hourly manufacturing pay was $4.30 in Mexico, which is half of the rate in Taiwan and Brazil, one-third of the Republic of Korea, and one-eighth of the U.S. and Canada.
4. Supply chain improvements magnify Mexico’s geographic advantagesInvestment in supply-chain infrastructure, spurred by the privatization of the country’s major industries, has resulted in $226 billion in rail, roadway and port improvements since 2006, a 50 percent increase over the previous six years.
Mexico’s rail shipments as a percentage of overall freight shipments have risen from 8 percent in the 1990s to about 20 percent today, and U.S. rail companies are investing in infrastructure improvements to capitalize on burgeoning trade volumes at major ports such as the West Coast port of Lazaro Cardenas, now the fastest-growing port in North America. Kansas City Southern de Mexico (wholly owned by Kansas City Southern Railroad) has invested more than $275 million to improve the rail corridor between the port of Lazaro Cardenas and Houston, Texas. APM Terminals is also building a $900-million container facility at the port to compete for Asian imports bound for U.S. and Mexican markets.
Truck shipments, which rose by 11.4 percent in 2011, still eclipse freight volume by approximately 300 percent, and the Mexican government is investing in improvements to its major highways and border crossings to speed up delivery times.
“Logistics companies are capitalizing on the combined benefits of Mexico’s geographic advantages and supply chain improvements by using multiple trucking operations to move products to U.S. markets,” said Ramirez. “Goods can be shipped from Central Mexico to Chicago in about three days, compared to the three weeks it takes to ship products from China to the U.S.”
5. Mexico: An eager business partnerInvestors are increasingly benefitting from Mexico’s trade agreements, export programs and overall movement toward operational transparency. Mexico now has free trade agreements with 43 nations; compared to 20 in China and 15 in the U.S. In a move to encourage foreign investment, Mexico has created export promotion programs to reduce or eliminate import, value-added and customs operation taxes. It has also implemented the Strategic Tax Zone Regime, which allows for the tax-free storage and repair of goods.
Mexico’s economic initiatives have paid off: According to Jones Lang LaSalle’s Global Transparency Index, Mexico’s rate of improvement in overall transparency ranks second in the Americas and third globally.
“There are a variety of compelling reasons for investors to consider Mexico as a supply chain location. With the country’s improved supply chain infrastructure, expanding and low-cost labor pool, growing manufacturing base and geographic advantages, the outlook for industrial investment appears favourable for the long term,” concluded Thompson.
About Jones Lang LaSalleJones Lang LaSalle (NYSE: JLL) is a financial and professional services firm specializing in real estate. The firm offers integrated services delivered by expert teams worldwide to clients seeking increased value by owning, occupying or investing in real estate. With 2011 global revenue of $3.6 billion, Jones Lang LaSalle serves clients in 70 countries from more than 1,000 locations worldwide, including 200 corporate offices. The firm is an industry leader in property and corporate facility management services, with a portfolio of approximately 2.1 billion square feet worldwide. LaSalle Investment Management, the company’s investment management business, is one of the world’s largest and most diverse in real estate with $47 billion of assets under management. For further information, please visit www.joneslanglasalle.com.
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