Why Are Manufacturers Increasingly Relocating To Mexico?


Aug 11

Mexico has become a major manufacturing hub for a variety of goods, most notably autos and appliances. Companies have set up factories at a considerable rate. While low labor rates, worker productivity, and favorable trade circumstances have all contributed to Mexico’s appeal as a manufacturing location, there’s a major factor that may mean some serious competition for United States based manufacturing and other global hubs: the cost of electricity.

Mexico’s falling electricity rates draw manufacturers | CNBC

Monumento_a_la_RevolucióImage Source: Wikimedia

“By opening its energy markets, the [Mexican] government hopes it can draw investors who will help develop its remaining oil reserves, and later, its vast shale gas deposits. But the biggest impact so far has come from changes to the country’s electricity policies. ‘Probably of all the energy reforms that have been passed, the changes in the electricity sector are going to be most helpful to Mexican productivity and competitiveness,’ said Duncan Wood, director of the Mexico Institute at the Wilson Center. […] Mexico’s border with the United States makes it an attractive place to manufacture items such as appliances, heavy equipment and cars. Most of its manufactured goods go northward to American stores. Mexican manufacturing rose by 3.4 percent in the first nine months of 2014, while Brazil and Argentina’s contracted by 1.8 and 2.4 percent, respectively, according to a report from Stratfor.”

While the U.S. is enjoying cheaper energy rates thanks to the shale boom, it’s hard to determine if we’ll lose more manufacturing companies to Mexico as our southern neighbor also enjoys falling electricity costs.

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