Companies & Industries

The New Mexico


Workers prepare a wall and floor before pouring concrete for a building in Mexico City.

Photograph by Susana Gonzalez/Bloomberg

Workers prepare a wall and floor before pouring concrete for a building in Mexico City.

If I had to pick the one country in our hemisphere that is the most misunderstood here in the States, Mexico would win hands down.

Many Americans continue to think of Mexico as a nation of itinerant farm workers and day laborers looking to slink across the border to take low-paying U.S. jobs. It’s stereotyping at its worst.

U.S. business leaders need to correct the record. Mexico today is a land of skilled labor, hard work, and growing prosperity.

Boston Consulting Group estimates that within the next five years, manufacturing exports alone could add $20 billion to $60 billion annually to Mexico’s GDP, which hit $1.8 trillion in 2012. That’s in large part because last year, according to our calculations, average manufacturing costs in Mexico, adjusted for productivity, dropped below China’s. We estimate that two years from now, average total manufacturing costs in Mexico are likely to be 6 percent lower than in China and 20 percent to 30percent lower than in Germany, Italy, and Japan.

Thanks to the North American Free Trade Agreement (Nafta), U.S. manufacturers and workers will benefit from Mexico’s manufacturing boom as well, since U.S. companies supply parts and components for many goods manufactured in Mexico—four times the value of the components the U.S. supplies to Chinese manufacturers.

In short, Mexico’s economy is joined at the hip to our own. Success there means success here. Why do Americans focus instead on the negative?

With more than 118 million people, 40 percent of whom are under the age of 20, Mexico has the 11th largest population in the world. It has a labor force of 51 million, a number expected to reach nearly 60 million by 2020. And its current unemployment rate is less than 5 percent.

Mexico has become one of the world’s leading exporters, shipping some $371 billion worth of goods in 2012. While three-quarters of these exports came to the States, Mexico has much bigger plans for the future and in pursuit of this vision has negotiated 44 free-trade agreements, more than any other country in the world and more than the U.S. (20) and China (18) combined. In addition to Nafta, Mexico has free-trade agreements with Japan, the European Union, the European Free Trade Association (Norway, Iceland, Switzerland, and Liechtenstein), and virtually every country in Latin America. If ever there was a sign that read “Open for Business,” this is it.

So how does this affect the U.S.?

A growing Mexican economy means a growing middle class—with disposable incomes and an appetite for U.S. branded goods. Nearly 40 percent of Mexico’s population now qualifies as middle class. And Mexicans appreciate American brands. According to the U.S. Census Bureau, U.S. sales to Mexico were $216 billion last year.

And as more good jobs are created in Mexico, fewer Mexicans will feel compelled to seek jobs elsewhere. Jobs in Mexico are the ultimate solution to America’s illegal immigration problem. Forget quotas, fences, border patrol agents, and everything else. A growing Mexican economy is the best possible solution.

Like everywhere else, Mexico has its problems. We all read the headlines; we know about the drug wars, corruption, and violence. The problems are there; they are real. But they can be managed.

Still, global companies will continue to move production to Mexico due to its low labor costs and proximity to the U.S. market.

The cost advantages are such that businesses will adjust to the problems, the Mexican economy will continue its growth, and our own country, companies, and workers will reap many of the benefits.

Hal_sirkin
Harold L. Sirkin is a Chicago-based senior partner of The Boston Consulting Group (BCG), a professor at Northwestern University’s Kellogg School of Management, and co-author, most recently, of The U.S. Manufacturing Renaissance: How Shifting Global Economics Are Creating an American Comeback (Knowledge@Wharton, November 2012).

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