Mexico’s Economic Perspective
One of the special topics covered in the 19th Annual 3PL study is Mexico’s current rise as a manufacturing and logistics hub. Mexico is currently the 14th largest economy in the world (2nd largest in Latin America), and is on-track to be the 5th largest global economy by 2050. The size and growth of Mexico’s economy, along with its geographic proximity to North America, its 12 free trade agreements (the most of any country), and the country’s low-cost yet highly productive manufacturing sector, all combine to make Mexico a renowned manufacturing and export destination. In fact, 40% of this year’s 3PL survey respondents stated that their company has already moved some of their operations to Mexico, with the United States and China being the primary countries from which these operations were previously located.
Mexico is the 15th largest exporting country in the world, with 80% of its exports coming from the manufacturing industry. In addition to continued growth in the export business, the amount of goods and service produced for its domestic consumption also continues to grow. With growth in both its export and domestic sectors, growth of logistics services is crucial in enabling Mexico’s businesses to be cost competitive in a global market.
This trend has been growing over the past few years, as shippers have reported significant cost reductions by moving operations to Mexico. For example, in 2012, shippers reported an average logistics reduction of 21% by moving operations to Mexico compared to other parts of the world. In addition, inventory costs and order fill rates have likewise shown improvement when operations were moved to Mexico.
Although survey respondents have stated that they have benefitted from lower costs by moving business to Mexico, respondents also stated that they have yet to see a significant revenue growth from the growing Mexican economy. Several logistical obstacles exist that contribute to Mexico’s challenges: (1) a lack of quality infrastructure, (2) limited use of technology, (3) high crime rate, (4) export dependence on other countries, and (5) the country’s current regulatory situation.
Lack of quality infrastructure – Mexico’s economy has grown faster than its road system, resulting in many survey respondents citing a lack of infrastructure as one of their top transportation challenges.
Limited use of technology – Currently there is little use of IT by small and medium sized businesses in Mexico. Those businesses that are currently using IT often see it as an expense instead of as an investment in improving business efficiency and effectiveness.
High crime rate – Mexico ranks 106th in the world on the Corruption Perception Index, and is severely lacking institutions to keep organized crime and corruption in check. Track and trace technologies exist in order to increase security and accountability during transportation, however, safety and security still remain large challenges for Mexico moving forward.
Export dependence on other countries – Due to its large dependence on exports, Mexico has a large risk to its export business in times of global economic downturns. For example, during the 2008 financial crisis, Mexico was the most affected Latin American country. Additionally, export growth from other economies, such as Brazil and China, will affect the growth of Mexican business.
- Current regulatory situation – Dealing with government entities is still very timely in Mexico and can have negative effects on business outcomes. For example, registering property in Mexico takes a total of 74 days (compared with the 26 days it takes for OECD countries).