Tapping into Mexico's manufacturing hubs to bolster supply chains | JLL

Mexico is rising. Long a hub for manufacturing, the country’s proximity to the United States, more affordable operating costs, and skilled labor forces have made it an attractive destination for manufacturer owners and occupiers for decades.

Recent tariffs on Chinese goods and a trend towards regionalized production in the wake of the pandemic have led to a boom in manufacturing-related foreign investment in Mexico. While increased costs and infrastructure challenges are pushing some companies to explore other locations, Mexico will continue to anchor North American supply chains for the long haul.

Since 2010, Mexico has grown by nearly 1 million new manufacturing jobs and $166 billion in direct investment, with about a quarter of that in the last three years. Investment in Mexico has been heavily centered in the traditional industrial hubs—the Bajío region north of Mexico City, and cities along the border with the U.S. This comes on top of a surge in back-office shared services in Mexico in the past five years.

Increased tariffs on more than 6,000 products from China have led more manufacturers to set up shop in strategic locations in Mexico, where trade agreements are far more favorable. Last year, the U.S. bought more goods from Mexico than China for the first time in two decades. This is a clear indication of evolving global manufacturing and trade patterns post-pandemic.

Some manufacturing companies have looked to South American and Caribbean regions for greater affordability when it comes to land and labor. But the distance and lack of necessary infrastructure make these increasingly difficult for owners and occupiers to pencil out new opportunities.

Small island countries are, by design, a deterrent for most companies due to potential storm impacts and supply chain disruptions. Other major manufacturing hubs in Brazil and other South American cities are considered too far from destination locations in North America and Europe.

This keeps northern Mexico in a prime position as a strategic location for global manufacturers, especially those with a North American office footprint. The calculations for manufacturers heavily depend on the ability to source a lower-cost workforce and the risks of going below Mexico City—where supply chain logistics become increasingly complicated.

Anchored by Monterrey and its 120-plus industrial parks, Nuevo Leon in northern Mexico has seen an incremental 48,000 new jobs from inward direct manufacturing investment between 2020 and 2022.

Northern Mexico’s labor force has evolved over the last 30 years from manual assembly that was light in operation and low in capital investment but high in labor demands, to highly skilled labor producing electronics goods, medical devices and complex manufacturing like automobiles.

Electronics and device manufacturing and light assembly in cities such as, Guadalajara have made the central-west region a global economic powerhouse. Labor is abundant, incredibly productive and all levels of talent can be sourced in the region, attracting companies that include Johnson & Johnson, and Caterpillar.

The Bajío region similarly has evolved from a base for electronics manufacturing to one of the world’s premier destinations for automobile manufacturers. Toyota, Honda and General Motors all have large plants in the Bajío, and the depth of skilled labor has spurred a boom in aerospace manufacturing. Airbus and Boeing, for example, have opened plants where aircrafts are assembled and maintained and individual parts are built.

It’s important to note that it takes a long time to develop a manufacturing platform to compete with those in more established markets. It is difficult to develop industrial sites in Mexico, and even harder to develop industrial sites in territories outside of Mexico.

Semiconductor manufacturers, defense manufacturers, and agriculture companies have also developed strongholds in Mexico in recent years. More than 80% of these exports now go to the U.S.

But rising inflation and labor costs and the limited provision of electricity and sustainably sourcing water in some parts of Mexico are leading to new outlooks on alternative locations within Mexico and in other North American regions. These include emerging manufacturing hubs in the U.S. and Canada.

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