The Fastest, Growing Global Technology Hub in Latin America

You must be thinking – How did Mexico grow to be the largest exporter of high-technology goods and the third-largest trading partner? When did Mexico turn out to be the leading hub for major manufacturing companies? At what time did Mexico develop into a country full of opportunities and rapid growth? When did industrialization begin in Mexico – emerging as the up and coming technology country?

The answer lies in globalization and modernizing Mexico for innovation, expansion, and growth.

Embarking on the Road Less Traveled

The road less traveled is a perfect metaphor for how the United States started to think in innovative and resourceful ways after companies were severely struggling and under pressure in the 1990s to lower costs as a business practice were no longer working and old rules the governed organization needed to change.

It is said, that someone who takes the road less traveled acts unconventionally, independently, freeing them from the conformity and making their own choices to create new opportunities. This was certainly true for the United States CEOs and executives who struggled in lowering the costs of production and operations.

  • Undoubtedly true for the U.S. companies who desperately looked to find new ways of doing business by uncovering a highly educated workforce at a fraction of what they are paying and reduced operational costs.

In the early part of the 1990s

The recession took root and was a time of economic downturn. Inflation concerns, the loss of business and consumer confidence, a substantial decrease in defense spending, and the slump in office construction are contributing to the Western decline in spending.

People are finding discount stores to shop at, as the recession worsened. Companies are reduced by 15%, and unemployment is at an all-time high as layoffs are widespread and contribute to the financial crisis.

CEOs look to near sourcing jobs in search of cheap labor around the globe, as the economy goes through growing pains.

Manufacturing companies are struggling to compete and look at cost-reduction efforts and identify materials, labor, equipment, and overhead expenses as the highest cost to their organization.

  • Cost reduction initiatives from short-term and long-term plans take shape as operations, practices, and assessments are analyzed.
  • To improve numbers and increase profits, benefits, hiring the cheapest employees, cutting vendor, and administrative costs become part of the cost reduction strategies.
  • Mexico becomes an alluring choice and a desperate move for U.S. organizations; helping them too significantly cut costs.

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Nearshore IT Services

From ongoing staffing needs to a rich, 24/7 onsite/nearshore model, our Data Science premium support teams are tailored specifically to meet your needs. Hire an IT resource that’s relatively within the same time zone, cost-effective and easier to access than most offshore services.

Since we’re highly proficient Data Mining and Big Data specialists, our Nearshore team can extract the critical knowledge and insights you need from your structured and unstructured data.

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The NAFTA Promise

The NAFTA agreement gets signed, and corporate managers start to threaten and inform U.S. employees they will lose their jobs unless they agree to lower pay, as jobs will be replaced by Mexican workers.

  • NAFTA boosted trade, reduced tariffs on imports and exports, and eliminated barriers.

NAFTA promised a richer and more prosperous Mexico as trade among the three countries U.S., Mexico, and Canada flourished, however close to 700,000 US jobs were lost, and factory wages suppressed in the U.S.

  • New practices begin to take shape, and the Internet is center stage. Companies find themselves in unfamiliar territory as the Internet creates new ways of doing business. Many called it the Information Super Highway.
  • The Internet was a growing trend that leads companies to function more efficiently with highly profitable digital processes and effective business practices.
  • In the 1990s, the internet, outsourcing, and moving operations to Mexico where common discussions in corporate America and the removal of old practices, regulations, and rules that preside over organizations.

Mexico – A Global Hub for U.S. Companies

As the very lucrative North American Free Trade Agreement gets signed as trade restrictions are loosened, and three countries become united for trade development, progress, and advancement. Mexico brought to the U.S. workforce in their country established technical training centers and colleges for trade manufacturing, from engineering to computer programming.

The partnership led to a positive result in economic and diplomatic relations between the United States and Mexico – as borders opened, and a new future begins for all three countries.

Looking Back

Before we begin, let’s take a glimpse into American companies and how corporate executives during the early 90s had to think differently to be more competitive and the rising pressures to reduce operational and production spend as labor costs increase. The signed agreement and new hope as promising transformations start to take hold more than two decades ago, encouraging U.S. executives to take the plunge to Mexico, as many CEOs don’t look back.

Companies that moved to Mexico

Resulted in Mexico’s economic stability, more jobs were created and skilled trades. More opportunities for higher education, schooling for people who would normally never have the chance.

For the U.S. companies, it led to a reduction of 12% tax rates, simply by moving manufacturing operations and their facility to Mexico.

  • New breakthroughs in thinking started to emerge, new and improved production processes, manufacturing simplified labor cost-saving, the increasingly educated workforce at a reduction of what the U.S. would pay the same person in the U.S.
  • Duty-free agreements covering more than 44 countries and have a more established and stable infrastructure, 35% of Mexico’s economy is in manufacturing, with easy access to the United States; it only makes sense to moves operations.
  • Over the last decade, there has been much success with U.S. companies moving to Mexico. However, the Harvard Business Review has stated, establishing and maintaining production operations in Mexico can be unexpectedly difficult, costly training programs, and hiring and teaching new skills can be risky.
  • The agreement impacted liberalizing trade in automotive, textiles, and agriculture – protecting intellectual property and established dispute resolution mechanisms.
  • Produced an impressive $22.2 trillion in gross domestic product and implemented labor and environmental safeguards.

NAFTA, together with the Mexican government’s help, produced a definite positive upswing in lower consumer pricing, increased trade-economic production, and manufacturing productivity and foreign investment.

Nevertheless, it came with sadness and hardship as many U.S. jobs were lost domestically in manufacturing since most of those jobs went to lower waged Mexican workers. The Secretary called NAFTA “essential to U.S. export growth and job growth.”

Low-Cost Manufacturing Lures U.S. Companies to Mexico

Since Mexico and the U.S. connected demographically close, increasing global operations begin. The controversial trade pact (NAFTA) established in 1994 – signed into law by President Clinton to encourage countries to develop broader opportunities, which resulted in the world’s largest free-trade zone.

Gradually ease tariffs and other trade barriers and product difficulties. It was the beginning of breaking through the norm and exploring new ways of doing business.

The Move to Mexico Begins I A New Future is Set into Motion

Aerospace, electronics, automotive, and medical device industries look to Mexico for low-cost manufacturing as executives receive a firm commitment from the Mexican government.

  • Both countries are significant investors in one another as they build products together with a secure and robust infrastructure.
  • Mexico moves forward to protect U.S. companies with improved security so Americans can feel safe, confident, and secure as they move operations to their country.
  • Mexico is the United States’ top tourism destination and exports fruits, vegetables, coffee, oil products, silver, and cotton.
  • It would only make sense that Mexico provides the U.S. market with a skilled workforce, easy accessibility of entry, and lower purchase cost of industrial space and land – and with Mexico having the longest border between the two countries, security and protection are unyielding.

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Our support services will free up your senior IT staff from the overwhelming burden of day-to-day maintenance issues. Now they’ll have time to launch those new projects and applications you’ve been waiting for. Simply put, we can free up your resources and contain your costs. Let’s have a quick chat to discuss our exclusive services.

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Keep Moving Forward with Aptude

Aptude is your own personal IT professional services firm. We provide our clients with first class resources in a continuous, cost-containment fashion.

Our support services will free up your senior IT staff from the overwhelming burden of day-to-day maintenance issues. Now they’ll have time to launch those new projects and applications you’ve been waiting for. Simply put, we can free up your resources and contain your costs. Let’s have a quick chat to discuss our exclusive services.

CONTACT US

In the News – President Trump and Recent Talks

  • Donald Trump, on Jan. 29, 2020, signed the USMCA agreement and promised to create 600,000 jobs and add $235 billion to the economy.
  • Automobile companies are now required to manufacture no less than 75% of car parts in the U.S., Mexico, and Canada; previous was 62.5%.
  • On May 31, 2018, Trump imposed a 25% tariff on steel and a 10% tariff on aluminum on Canada, Mexico.
  • According to the Tax Foundation – Tariffs would hinder the U.S. economy.
  • Producers and consumers would be subjected to higher prices and raise the cost of parts and materials.
  • Higher consumer prices caused by tariffs would reduce the after-tax value of both labor and capital income. Higher prices would reduce the return to labor and capital.
  • Americans with a reduction in work as they invest less, resulting in negative output in productivity and employment.

ASMCA Draws Attention with Mixed Reactions

  • It would ensure auto-workers a $16 an hour wage (40% of passenger cars) (45% of smaller trucks).
  • S. safety standards must be met for Mexican trucks that are crossing the border.
  • It permits Mexico to allow its workers to form unions.
  • It provides more protection for patents and trademarks.
  • S. drug companies can sell products in Canada and Mexico for up to 10 years.
  • The new agreement is estimated to bring back 500,000-750,000 manufacturing jobs lost in California, New York, Michigan, and Texas. However, it could raise the price of affected imports for American consumers.
  • Americans will now pay more for beer, computer equipment, and cars since prices on products imported from Mexico will rise.
  • Many industries will take a hit – Trump’s tariffs will hurt the medical industry and on surgical equipment. Including televisions, phones, tractors, and crude oil.
  • Trump’s motto is “To make America Great Again,” but it’s not without a hefty price that U.S. companies will certainly have to make before they move to Mexico. He wants to keep U.S. companies from moving to Mexico and will reevaluate operations and production.

Advantages of Expanding Operations to Mexico

  • Lower shipping costs due to Mexico’s proximity to the U.S.
  • Similar time zones
  • Meager minimum wage – $4.70 per day
  • Acquiring land in Mexico is cheap
  • S. executives can easily and frequently fly back and forth to Mexico
  • Access to new customers
  • Available skilled manufacturing workers
  • Strong legal protections for intellectual property rights

Disadvantages of Moving Business to Mexico

  • Be aware of high crime areas; organized crime plagues businesses
  • Widespread corruption, bribery, gun trafficking, extensive money laundering, illicit drugs
  • Drug trafficking organizations post the greatest threat to U.S. companies
  • Violence, shootings, gangs and border security issues
  • Fraudulent, shady, dishonest people and suppliers
  • Mexican buyer is required responsible for obtaining permits, making payments to Mexican authorities, and contracting with a Mexican Customs Broker is a complicated process. Getting permits, documentation, certificates, and licenses is a slow process.
  • Documentation and Logistics can be complicated – conventional methods of shipping goods are by truck, rail, and air and by sea.
  • Understand which shipping method works best and finding reasonable and fair freight forwarders and export agents can be tough but can assist with the many issues to tariffs, fees, transportation, packing, and shipping requirements can be problematic and challenging.
  • Very slow to start and acquiring construction permits with corruption and dishonest administration
  • Time-consuming taxes

Location, Market Diversity Drive the U.S. to Mexico and develop into the No. 1 Trading Partner

  • NAFTA was the new road less traveled and generated the most extensive free trade in the world and boosted economic growth, profits, and jobs totaling $1.23 trillion in 2019.
  • A new way of thinking started to emerge, that was never even thought of back in the late 70s and early ’80s. Up until 1994, companies were traditional and went about their business doing the same thing, thinking the same way and everything worked.
  • According to U.S. Trade Numbers – U.S. trade with Mexico rose in 2019 to $614.5 billion. Exports totaled $256.37 billion, and imports totaled $358.13 billion.
  • CEO’s wanted to lower production and operational costs and produce products significantly less.
  • To increase outsourcing a portion of product processing to save money and nearshoring to Mexico was the answer, as the country was able to streamline processes and operational simplicity.

U.S. Companies Look for New Opportunities for Sustained Growth

How did Mexico adopt a free market economy and quickly progress forward – investing in a more industrious, productive city? Why did pharmaceuticals, high tech, manufacturing, aerospace, R&D, computers, electrical equipment, and scientific companies move their facility to Mexico?

The answer is the increase in foreign trade drawing in the US-based companies.

  • As various industries struggle to be competitive, many look for new innovative ways to secure their production future.
  • Lowering costs is an everyday concern as they begin their quest to extend manufacturing operations across international borders as a way to access affordable infrastructure and high-skilled workers.

Entrepreneurs and well-established fortune 500 companies expand their facility to Mexico due to the proximity to the United States.

With dependable factory workers that are 70% cheaper than in the U.S., this becomes the driving force.

  • The average wages for Mexican employees start at $2.40 for unskilled direct labor workers, welders $4.32, machinist $4.91, Programmer/Technician #11.24, and Q.C. Engineer only $15.09 an hour.
  • There are tremendous savings, and U.S. companies have access to secure transportation and cost-efficient operations.

Contact our guy, Guy DeRosa today

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The New Economic Landscape

U.S. company executives of manufacturing have to continually move with the times and adjust to growing changes in the world as technology changes. The shortage of workers results in an increase in labor costs, and a demand for skilled workers intensifies and escalates into an everyday concern.

  • Moving operations to Mexico caused fewer skilled workforce and current labor workers that are left in the U.S. manufacturing plants, which are producing the goods and services, are now demanding higher pay for their trade and better benefits.

Why U.S. Companies are Repositioning Product Strategy and Moving to Mexico

Many companies in the U.S. feel continued pressured to reduce expenses as labor costs account for as much as 70% of the total business expenditure, which includes employee wages, benefits, and payroll.

Finding highly skilled production workers with the right technical expertise, industry knowledge, understand manufacturing methods, and are educated in their field.

Acquiring real-world experience and know-how in various production and warehouses is challenging and hard to come by and at an affordable price.

  • CEO’s need to be creative and think outside the box when it comes to delivering the product – competition is fierce, and growing labor costs push U.S. executives to move their facility to Mexico.
  • S. ties to its neighboring country Mexico became an attractive global commerce decision and would help in cost-effective and efficient measures and has a positive impact on business in saving money, reducing overall spend and securing growth and product expansion.
  • Mexico’s minimum wage is significantly lower than the U.S. minimum wage and has drawn American companies to leave the U.S. in favor of a more stable work environment. The proximity to Mexico and having warm weather all year round is attractive for U.S. executives.

Trump gives NAFTA a Makeover and was ReBranded as USMCA

The Renegotiation of NAFTA and the New US-Mexico-Canada Agreement Trade Deal (USMCA)

Changing the conflicting views people have of the NAFTA agreement came with apprehension. Getting everyone on board from democrats to republicans was even tougher as people were worried and concerned about their jobs.

In recent political discussions, Trump has been very vocal and has made it clear to bring back U.S. companies from Mexico. He has made it difficult for companies to move their facility to Mexico with even more stringent policy changes.

His slogan “Let’s Make American Great Again,” has definitely stirred up much controversy in corporate America and in the United States.

Yet Trump had made it his mission to revamp the trade agreement when he was in office – and to lower the trade deficit between the United States and Mexico.

  • The agreement created more than 25 years ago, the rebranding was inevitable and expected since it shook up congress and had many politicians’ worried. It took three U.S. presidents and ten years to get NAFTA in place and signed, the appeal is still there and beneficial for the United States and Mexico.

The idea of free trade was a difficult concept for the democrats and the republicans. Yet, it took the vision of President Ronald Reagan, who originally started it, and while President H.W. Bush negotiated the global specifics by lowering trade barriers among the countries – envisioning the expansion of supply chains.

However, it was replaced by USMCA as a way to better control trade. It created a much-needed facelift with fairer trade, freer markets with stable economic growth in North America.

  • According to the office of the United States Trade Representative website, the new trilateral USMCA agreement was a mutually beneficial trade deal that is effective, modernized and makes sense for all three countries involved. It will pave the way for fairer trade, freer markets, and a more robust economic growth for North America.
  • The agreement shared by these three countries U.S., Mexico, and Canada, moved from NAFTA to USMCA with critical changes. It will remain for 16 years; after that time, all three countries can renegotiate the terms or withdraw the agreement.

The Takeaway

Companies will continue to move operations to Mexico due to how simple and easy it to manufacture in Mexico. Labor costs are dramatically low, with companies being able to save 30% on the workforce, with the high talent, expertise, and work proficiency among the Mexican labor force, with more than 110,000 engineers graduating in Mexico.

However, it doesn’t come with some significant risks and challenges, and companies need to do their homework, research, and talk to companies who have had much success.

  • The Mexican government has invested in training, education, and trade schools and has encouraged its people to acquire technical skills and more education as the government provides hand-on experience. 
  • S. companies have a wide range of highly skilled engineers, warehouse managers, skilled craftsmen, manufacturing engineers with Mexico’s increasingly growing workforce of qualified workers.

Before a U.S. company moves to Mexico, they need to get educated and know the facts on the new trade agreement USMCA.

Key Highlights from the USMCA Fact Sheet

  • Prohibit customs duties and other discriminatory measures from being applied to digital products distributed electronically (e-books, videos, music, software, games, etc.).
  • Ensure that suppliers are not restricted in their use of electronic authentication or electronic signatures, thereby facilitating digital transactions.
  • Limit governments’ ability to require disclosure of proprietary computer source code and algorithms, to better protect the competitiveness of digital suppliers.
  • National treatment, to ensure that U.S. financial service suppliers receive the same treatment as local suppliers.
  • Updated provisions would allow for the cross-border transfer of data and an updated market access obligation.
  • To ensure that U.S. financial service suppliers receive the same treatment as those from other countries.
  • Covers unfair currency practices by requiring high-standard commitments to refrain from competitive devaluations and targeting exchange rates, while significantly increasing transparency and providing mechanisms for accountability.
  • One of President Trump’s principal objectives in the renegotiation is to ensure the agreement benefits American workers.
  • Prohibits the importation of goods produced by forced labor, to address violence against workers exercising their labor rights, and to ensure migrant workers protected under labor laws.

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Vice President of International Development
EMAIL SRINATH
p: 630.692.6700
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