According to Buie, Mexico's economic prospects dimmed in 2001 with China's admissionto the World Trade Organization. US manufacturers who for the previous 10 years had been moving factories to our southern neighbor now began shifting them from Mexico to China, where both real estate and labor costs were significantly lower. The subsequent rise of Vietnam, Korea, Malaysia and India only made the situations worse.

But rather than give in, says Buie, Mexican government and business leaders opted to "move up the value-added ladder" by investing in rising industries such as aerospace, automobiles and pharmaceuticals. They also promoted manufacture of higher-priced, customized products such as made-to-order electronics. As a result, Buie notes, by '06 maquiladoras had begun a full-fledged recovery and brought business back to and above previous levels. Today not only is Mexico the world's 14th largest economy, but in Buie's view it appears likely to achieve an even higher ranking in the not-too-distant future.

Nowhere is the resurgence more noticeable than in the auto industry. According to ProLogis,Mexico is now the world's 10th largest auto manufacturer and projected to rank fifth by 2011.Earlier this month, Mexican vice minister of the economy Heriberto Felix Guerra told an audience at the International Congress of the Automotive Industry in Mexico City that his government intends to double automotive output to $90 billion by 2015. The industry currently accounts for about 4% of the nation's economy. A major step, he said, would be to decrease the $17 billion spent annually on imported components by producing $10 billion of the components domestically.

Just in the past month, several major auto and auto parts manufacturers announced billions of dollars of new investments in Mexico. Ford Motor Co. alone reported it plans to invest $3 billion there, beginning with a $1 billion ramp up at an existing facility in Cuautitlan for manufacture of the Ford Fiesta. The company will also spend $800 million to expand a Chihuahua plant to produce diesel engines and $500 million to build a new transmissions plant in Irapuato. Meanwhile, Toyota said it will increase production of the Tacoma pickup at its facility in Tijuana by 55% and Bridgestone Firestone de Mexico announced a $90 million expansion of a tire plant in Cuernavaca.

According to ProLogis, Mexico also ranks 10th in the world in pharmaceutical production and is quickly moving up the ranks of aerospace producers, growing from 65 plants and $270 million of exports in '01 to 150 plants and $600 million of exports in '07. In the electronics sector, the report acknowledges the country has conceded market share to China in high-volume, low-mix products such as as PCs and peripherals, PDAs, printers and game consoles. But it says that simultaneously its manufacturers have retooled to focus on low-volume, high-mix products such as high-end computers, routers, set-top boxes, medical devices and automotive electronics. As a result, the nation's electronics exports grew nearly 75% from 2003-07, and industry output is forecast to grow 13.5% a year for the next five years.

One of Mexico's biggest advantages in regard to doing business with the US, Buie points out, is its proximity and the substantially reduced travel time to get goods to their destination compared to shipping from China.

With the Mexican government having pledged $270 billion for construction, modernization and refurbishment of some 10,937 miles of highway and a massive track improvement program by Kansas City Southern Railway between Lazaro Cardenas, Mexico and Kansas City, the logistics advantages should only get better. Furthermore, the researcher notes, with China's wages and real estate costs rising faster than Mexico's, the country is poised to see the production differential dwindle as well.

Instant Insights /

ProLogis Says Mexico's Maquiladora Industry Returns

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