Manufacturing in Mexico: The Ultimate Site Selection Guide

Introduction to Manufacturing in Mexico

Mexico is known globally as a manufacturing hub. The country's different regions vary greatly, and certain areas have evolved into industrial hubs, or corridors, for export manufacturing companies setting up shop in the country.

For the full text and maps, download the Site Selection e-book.

When should you consider Mexico?

Manufacturing in Mexico has gained significant traction among global manufacturers due to its strategic advantages. But when should you consider setting up operations in Mexico?

Proximity to US Market

If your primary market in the United States, Mexico offers logistical advantages. Over $1.5 million dollars worth of goods crosses the US-Mexico border every minute.

Cost-Effectiveness

Mexico offers lower labor costs than the U.S. and other developed countries. The Northern border zone offers incentives to businesses installed there.

Skilled Workforce

Access a growing pool of skilled and semi-skilled labor, trained on U.S. systems. Mexico boasts a robust educational system, especially in engineering and technical fields.

Free Trade Agreements

Trading within the USMCA boosts jobs and spending for the entire region. Mexico's network of FTA's with over 50 countries simplified exporting goods globally and reduces trade barriers.

Recent Trends in Mexico

Nearshoring: the trend of relocating manufacturing closer to the US has grown due to supply chain disruptions and trade tensions with China. 

Electromobility: Mexico is increasingly adopting advanced manufacturing technologies in the automotive industry, as supply chains of top automotive companies are well-established in Mexico.

Warehousing: due to its strategic location, many companies include Mexico as a logistical hub for their commercial goods that enter into North America's supply chain.

Going Green: As prescribed in the USMCA, Mexican manufacturers are embracing renewable energy, waste reduction, and circular economy practices to lessen their environmental impacts.

Technology Sectors: Mexico is attracting investment in aerospace, electronics, and medical devices, which require a skilled workforce and advanced capabilities in software development and R&D.

Step 1: Assessing your Needs

PRODENSA tip - a need can be expressed very differently from different points of view. Ask major stakeholders to participate in defining the problem, current impacts, and future goals. This context gives our consultants the details needed to build the best site selection strategy.

• What changes would need to be made to not only be compliant, but to thrive in Mexico?
• Can you plans support growth? Are there scenarios where growth could be rapid?
• Can the site easily integrate into your overall production network?
• Will the logistics strategy be concentrated in-house or does it make sense to manage a network?
• How integrated will the decision-making be into the corporate structure? What does your training process look like?
• What key components or sensitive materials need a trade impact analysis?

These questions, among others, take a broader and more strategic approach to the site selection decision.

Identifying Key Decision Factors

Kurt Schmidt, PRODENSA's Vice President of Consulting, identifies Total Cost of Ownership as the foundation for which important decisions and investments are made in supply chain relocalization efforts. 

Cost Analysis: consider labor, taxes, infrastructure, and logistics costs to evaluate overall feasibility.

Transportation Costs: nearshoring to Mexico is mainly driven by logistics cost reduction, but the landscape within Mexico varies, so these costs also vary depending on the location.

Regulatory Compliance: companies may have higher upfront costs due to permits, certifications, or licenses, but depending on the operational model, these costs could be offset by eliminating tariffs and duties.

Infrastructure Costs: notable challenges include electricity costs, water scarcity, telecommunications, renewable energy sources, and can become political depending on the size of the operation.

Supply Chain Risks: Mexico may introduce new supply chain risks to the mix, such as political instability or security concerns, and some risk mitigation expenses like insurance or contingency planning may not be considered.

Step 2: Exploring Key Locations in Mexico

Each of the regions in Mexico has a specific profile, including strengths and weaknesses.

Northern Border Region

The Northern Industrial Corridor is made up of a group of northern states in Mexico such as Baja California, Nuevo León, Chihuahua, Sonora, Tamaulipas, Coahuila and Durango. These states are a vital part of the supply chains of many important sectors like construction, mining, aerospace and automotive, among others.

The Northern Industrial Corridor has a strategic position and advantage for international trade. For this reason nearly 60% of the country's maquiladoras are located within this region. Over 1 million Mexicans work in these 3,000+ maquiladora plants. 

Maquiladoras are pare of the IMMEX Program, and are factories that import raw materials into Mexico, use it in production or transformation processes, and then export it. The program offers foreign companies the opportunity under preferential tax and fiscal program once certified.

Some characteristics of the Northern Border Region of Mexico include:

• Geographical Advantages: close to the US border, facilitating swift exports
• Major Manufacturing Industries: automotive, aerospace, electronics, medical device, among others
• Large Maquila Workforce: young, skilled and educated workforce
• Government Incentives: various tax breaks and support programs

Download the Site Selection e-book for that includes a list of companies manufacturing in the Northern Border Region of Mexico.

Central Bajío Region

Found in the central northern section of the country are the industrial powerhouse states of Querétaro, Guanajuato, Aguascalientes, Jalisco, San Luis Potosí, and Zacatecas. The region is home to 8 different automotive OEM's, with the state of Guanajuato housing 6 of them. Additionally, there is an extensive network of 800+ automotive suppliers in the region. With the nearshoring boom and the ratification of the USMCA, experts think this sector will continue growing and providing optimization for the North American industry. Additionally, the Central Bajío Region accounts for about 19% of all industrial buildings nationwide. 

Mexico's trade liberalization efforts means that the market is one of the most open and competitive in the world. Mexico is a global leader in automotive manufacturing:

Some characteristics of the Central Bajío Region of Mexico include:

• Transportation Infrastructure: access to major highways and rails, and inland port
• Labor Force Demographics: abundant and cost-effective workforce with strong technical education
• Cost of Living: moderate, with a good quality of life

Download the free Site Selection e-book to browse a large list of manufacturing and tech companies operating in the region.

Mexico City Metropolitan Region

Financial and business services, information and media, and manufacturing are the leading sectors driving business activity in Mexico City and surrounding states that include Hidalgo, Morelos, Mexico State, and Puebla. The city is home to 12 of Mexico's 15 largest companies, with strong emphasis on state-owned enterprises. The presence of numerous universities contributes to the city's research and development capabilities, attracting a young and international workforce. 

Mexico's Valley Industrial Corridor is made up by Mexico City and 60 surrounding urban zones. Approximately 20% of the country's population resides in the corridor. It is considered the logistics hub of Mexico, with nearly 80% of the country's e-commerce market potential concentrated in the corridor. In fact, Mexico is the top country globally in e-commerce growth and adoption. A growing middle class and an important logistics network is driving this growth.

Puebla, south of Mexico City, is a state known for its automotive sector, especially surrounding Volkswagen and Audi supply chains. Over 65,000 employees in the state work in the industry.

Some characteristics of the Mexico City Metropolitan Region include:

• Labor Force Demographics: diverse skills sets with top universities in the city
• Cost of Living: low to moderate with strong cultural roots
• Major Industries: Finance, Business, Manufacturing

Download the free Site Selection e-book for the complete text, including a list of industries and details of the startup ecosystem. 

Southern Mexico

The southern part of Mexico has been traditionally known for its concentration of extraction, exploration and processing of hydrocarbons for Mexico. Recently, it has been the focus of potential growth in food products and other industrial developments. The intention of the government is to strengthen the economic activity in the south of Mexico, and other Latin American countries. 

The Mexican government has defined Special Economic Zones (ZEE in Spanish) in order to try to equalize the productivity at a national level. The Mexican government offers fiscal and labor benefits, a special customs regime, and support programs, among others, to businesses that establish in the zone. 

The Interoceanic Corridor is an important hydrocarbon hub. The government's plan, communicated in 2023, includes 10 industrial parks and a 186-mile freight rail linking Mexico's Pacific and Gulf coasts.

At Mexico's sourthern tip, the tourism-focused cities of Cancún, Mérida, Playa del Carmen, and more. Mérida, one of the oldest cities in North America, is home to a growing technology and IT services.

Some characteristics of Mexico's Southern Region include:

• Abundant Resources: rich in natural resources
• Cost of Living: low with a large indigenous population and strong craftmanship
• Government incentives: special programs to attract investment

Download the free Site Selection e-book to see the full list of incentives and planned development for the Interoceanic Corridor, located in the region.

Step 3: Choosing the Optimal Site

PRODENSA has established a 3-step methodology to choosing the optimal site for expansion and startup projects in Mexico.

Selecting the Right City

Define the "Musts" for the Project

 These are the most important characteristics that the city and surrounding area must have in order for the project to be successful. Some of them include:

• Infrastructure / Resources
• Population / Employed Population / Talent Availability
• Distance to Client / Border / Suppliers

Aim to reduce your options to about 3-5 cities before beginning to compare them.

Detailed Analysis

Compare and evaluate your list of "Wants" for the project, including things like:

• Operating Costs - Payroll, Logistics, Due Diligence, etc
• Labor - Skills, Culture, Turnover, Competitors, Academics, etc
• Incentives, Quality of Life, Security

Talk to other companies or consultants with boots on the ground in the area. This will give the best "feeling" that could describe perks that were not previously evident.

Weighing and Scoring

To make an informed decision about a location, assign weights to produce a statistical analysis. Visit shortlisted cities and assess real estate options to confirm or refine your decision. Finally, negotiate with brokers, infrastructure providers, among others to finalize terms and add the final decision factor to the analysis.

PRODENSA Market Intelligence

For Industry Research:

• Industry data, customized and visualized
• Integration with business data via multiple systems and ERPs

For Site Selection:

• Quantitative and qualitative data points
• Project feasibility analysis with cost modeling
• Site and city evaluation comparisons

Step 4: Conducting Due Diligence

Due diligence refers to the process of thoroughly researching and evaluating a potential location based on various factors such as economic stability, infrastructure, labor force demographics, government incentives, cost of living, and more. It serves as a safeguard against potential pitfalls, uncertainties, and hidden risks.

Evaluating Potential Sites

When evaluating potential sites for manufacturing in Mexico, real estate and available facilities play a crucial role.

Real Estate and Available Facilities

Land cost greatly depends on the location and whether it is inside of an industrial park or a greenfield. Developed land will typically include the basic infrastructure to allow for the utilities to connect at the foot of the property. Companies that prefer to purchase might need to consider going through the process of acquiring land and building their facility to their specific needs. 

The real estate strategy for a foreign manufacturer in Mexico can be one of the most strategic decisions to make for the project start up or expansion. Real estate should influence the site selection decision, but not drive it solely. Download the Site Selection e-book to learn more details about the industrial real estate market in Mexico. 

Access to Utilities and Communication Infrastructure

Infrastructure can significantly impact the implementation of manufacturing operations in Mexico. From the costs to the timeline, its always important to consider infrastructure and have as much visibility as possible.

• Industrial Parks: the option to work with large and professional development groups
• Electricity: Mexico's state-owned CFE is the largest generator and distributor of electricity in Mexico. Rate vary by state and are adjusted monthly
• Natural Gas: Mexico has natural gas infrastructure in most industrial cities
• Water: water and sewer systems are managed by state-owned companies
• Communications: voice/data infrastructure is good, with national and international options for services like high-speed, satellite and fiber optic

Note - in recent years, infrastructure investments in Mexico have not kept pace with manufacturing investment. For this reason, electricity and water availability is a particularly important variable to evaluate. Sign up to receive updates and insights in our weekly newsletter. 

Environmental Regulations and Permitting Process

The permitting process in Mexico has become an area of increased regulation and stringent enforcement. In addition to increased scrutiny and required documentation, the timelines for approval have extended. Read more about environmental permits and due diligence in the EHS Regulation in Mexico e-book. 

Security Considerations and Risk Mitigation 

In some cases, the manufacturing site as well as access to, from and around it will be important for security reasons. There may also be frequent planned travel for international employees or suppliers, and certain strategies may point to increased visibility from major transportation networks. 

Engaging with Local Authorities and Business Partners

Understanding Tax Structures and Incentives

There are many ways to operate a manufacturing facility in Mexico. These different models have vast differences in tax structures and implications. Running a financial feasibility analysis can compare the models and their alignment with the overall tax strategy.

Incentives may be available from the government to support new investment projects in the manufacturing industry. It's important to define the right moment to approach the government and to understand what is feasible. 

For a free consultation on operational models or possible incentives for you new project, schedule some time with our Mexico business advisors. 

Navigating the Legal Framework for Doing Business

Familiarize yourself with the legal requirements for foreign businesses operating in Mexico. There are many factors that can influence the site selection decision. Some resources:

• An overview of applicable laws for manufacturers Doing Business in Mexico
• An overview of applicable tax laws, programs and incentives
• Labor laws and recent reforms in Mexico have impacted many companies
• Institutional relations mapping of internal and external stakeholders

Identifying Potential Suppliers and Vendors

Mexico has a diverse and robust supply chain, with many companies specializing in various industries. It's important to identify the right suppliers for your specific needs, whether it be raw materials or specialized equipment.

Download the Site Selection e-book for more information on how to select suppliers in Mexico.

Setting up a Manufacturing Operation

The pre-operative phase involves all the steps required to set up your manufacturing operation and get it ready for production. During this phase, the readiness of the business, facility and workforce is of utmost importance. Read more about Key Milestones for Launching a Manufacturing Facility.

• Legal and administrative procedures
• Hiring and training workforce
• Importing machinery and materials
• Establishing supply chain connections

Site Selection Case Studies

Click to read the full case study.