For decades, US companies trying to cut costs and stay competitive have resorted to offshoring, sending jobs and sometimes their entire operations, to China and other faraway places where they can make their products for less. But recently some companies have started to rethink where they want to be with rising US China tensions and painful pandemic lessons about what happens when your product is stranded thousands of miles away from your customers, and now jobs are coming back west.
Instead of offshoring, we've got the reverse. It's being called near shoring, because who doesn't love a catch hraise. The key word here, though, is near. A lot of those jobs aren't quite coming all the way back. Bloomberg's Leeda Alivim and Maya Avrobuck report that hundreds of companies serving American consumers are instead relocating to Mexico, much closer than Asia but less expensive than operating in the US.
You can literally drive from Mexico for the city of Monterrey to the US border in less than three hours without hitting one single red light, so that's one of the big selling points.
I think what's kind of funny about it is that you can walk into an industrial park like that and you have like a giant cookie maker next to an auto parts maker, and they're all really there for the same purpose, which is that there's land. It's near the border.
I'm Westcsova today on the big take, Mexico is open for business, Lada. I had no idea that there was so much business and industry pouring into Mexico right now. Why exactly is this happening?
So it all started with tensions between the US and China. Since the pandemic has been rewiring global trade around the world, and now people and companies are looking to change and expand their operations closer to where their client is. So a lot of companies that we're seeing, and what we talk about in the story is they're moving or expanding operations in Mexico as a way to serve the US.
For a lot of years, we heard about offshoring, this idea that you move production overseas where it's cheaper, and this seems to be the exact opposite of that.
So now we're seeing the trend of near shoring, and Mexico is in the center of this new trend, especially the northern region of Mexico, including the state of Revollon where Monterey in the capital, Tesla announced a five billion dollar investment to build its new gigafactory.
Even with these tensions, why is it an advantage to be in Mexico.
Obviously, the US is a huge market. That means US consumers are buying products from around the world. If they're in Mexico, and especially in northern Mexico, they can just drive across the border. And it's a convenient for a lot of companies. Also because it's cheaper to produce in Mexico than in the US. And so not all companies are moving to Mexico, but there's certainly companies that are looking at the country and thinking, I'm going to be
a few hours from the US. I can appeal to different markets in this way, and I can guarantee to my customers that they're not going to have supply chain disruptions in the way that they did in the pandemic.
And you spoke to people involved in operating some of these businesses in Mexico. Here's one of them.
My name is so Semodia Rasa. I'm the CEO of Presido IP, the relement and construction right in Mexico northeast of Mexican. Remember, we got nineteen one hundred miles of border with the US, which is the largest market in the world, and based on the US and Free Trades agreement in Mexico had an our companies established in Mexico, none only to supply the US market, also to supply the world.
My side from Mexico has been close to the US. You're right that there are a lot of advantages to moving a company to Mexico.
Mexico is a country that's been developing manufacturing, especially near the border, since the sixties, and it's had this massive trade deal with Canada and with the US since the nineties, and so this is not like a new game for Mexico. The auto industry was already here, and so when auto companies are talking about switching to evs and are talking about selling EVS to US consumers, for many of them,
it's reoutfitting operations that they already have. A lot of the investment that's coming into Mexico from foreign companies is also building on plants that are already here. They're companies that are adding a second or a third plant, and so they kind of have the know how of what Mexico looks like. It's a country. Again, there are a lot of people work in manufacturing. It's a big source of employment. There are a lot of trained engineers. There's a lot of people who are looking to work in
these industries. And so for companies who are moving here or trying to expand operations, that's an advantage. And then for all those little companies or mid size companies, they're part of a chain. Right. So a company like Tesla might move to Mexico and it brings with it other companies in its wake. It needs suppliers for all its different parts and needs someone to make the plastic components the metal components in every car, and Tesla's not going
to do all of that itself. So the kind of assembly work that happens in these big manufacturing centers in Mexico is something that Mexico has been doing for decades and that it's really good at and companies want to keep doing that here, but at a bigger scale.
Now you can literally drive from Mexico for the city of Monterrey to the US border in less than three hours without hitting one single red light. So that's one of the big selling points of Mexico bringing those companies and attracting those investments into the region, which also raises an issue that even the government has been actively talking about. It's how the investment across the country is a little
bit divided between the north region and the south. So we see a lot of even the government itself trying to pull more investments from companies abroad to the southern regions, which hasn't been a lot of the case because if all those companies are coming to the northern region, they also are facing some certain challenges because of that big demand, and we see that with industrial park space, we see that with the challenges around infrastructure and how it's not
able to keep up that big demand. And they're trying their best to speed up the investments around, but many still think that's not enough and there's still more to do. The current governor of the president and Esminuel Loprezo Brador, who is known as AMLO, is focusing its last term in office on building and developing its big product of a railroad that will connect both the Pacific and the Gulf of Mexico, and they're selling it that it will rival the Panama Canal, and I.
Want to talk a little bit more about some of those big challenges that Mexico is facing out as so many companies are flocking there. But first let's talk a little bit more about what kinds of companies are showing up in Mexico and Maya. You talked a little bit about Tesla, and one of the things that just stood out to me in your story was the incredible gravitational pull that Tesla's new plant there has brought, and how many other companies are coming in to support it.
The Economy Ministry the state, Ivan Rivas, told us that he estimated that some thirty companies had moved to the state in the last few years, both because of the Tesla plant that's going to be built in Mexico and another Tesla factory that was built in Austin, Texas. And so these are the parts suppliers, right, These are the people who make the windshield and the brakes and the machines that make it possible for there to be self driving cars on the road. Obviously a lot of those
providers don't just sell to Tesla. They can sell the same kinds of products to all different kinds of companies. And so you see companies that sell some products to the auto's market, some products to other people, and they're working with plastics and metals, and so, yeah, Tesla has kind of been a selling point for the government. There was a lot of hype later.
With all these companies coming to Mexico. How much does all this investment work?
Well?
The Mexican economy has been recording export figures over the last few months as a result of this near shoring boom. Just an example, in May, shipment rows five point eight percent from a year ago, reaching fifty two point nine billion and recording the second highest print on record. Just this year in general has been record breaking for Mexico
in this terms of exports. And even to put into some context when we talk about this foreign direct investment is how much are we seeing in Mexico coming in?
Mexico received twenty nine billion in foreign direct investment in the first half of twenty twenty three, in which most of that money comes from the US since it is the number one buyer of goods, and the amount represents just forty one percent increase from that same period a year before, and even bisector fifty seven percent is manufacturing, so we definitely see that shift.
I would also just say we talk a lot about auto because they're these huge consumer products for the US because there's a shift to eves and incentives in the US for people to do that, and some of those cars are being made in Mexico. And the auto and transportation sector was responsible for one hundred and fifty billion dollars of exports from Mexico to the US this year.
But we also see things like computers and electronics and furniture, and there's this huge increase in exports of beverages and tobacco. So there's this real diversity of products that are going from Mexico to the US.
And another thing that you talk about that's really very interesting, especially when we're talking about the relationship between the US and China, is how many of the companies moving to Mexico that are Chinese companies.
Yeah.
Absolutely, I think that Chinese companies sell to all kinds of different suppliers and data. I want to be left out. Those Chinese companies want to be part of experts to the US, and if they're operating in Mexico, they're not going to be facing the same kinds of tariffs as if they were producing still in China, and.
Lady, you're write that this is kind of one way that China is keeping its hand in and not losing out on all that business even if they're not producing it at home.
Right, they want to follow that trend. And just to mention that this past month in China was very tough in general with the slow down and the economic troubles, which is putting Mexico in an even better position in terms of its relationship to the US. We're seeing that Mexico is being uplifted by it and it's boosting its position and its relationship with the US. And just in July, it officially became the biggest import for the US. They're passing China that has for long been the number one.
One study from the Bank BBVA suggested that in the next couple of years, one in five foreign investments in Mexico would come from Chinese companies. So they're having this growing role in new investments in the country. And while other companies are expanding, it looks like the new ones that are moving in definitely include a lot of these Chinese firms.
After the break with so many new factories cropping up, does Mexico have the infrastructure to handle it. Mayo. We mentioned earlier that all of this investment that companies are bringing are also coming with a certain amount of headaches that Mexico wants them to come, but they don't have the infrastructure to support all of this industry. Yet what are they doing about that.
Companies have to make a decision about whether they're willing to run into certain kinds of risks when they're deciding to invest, because these are long term investments. So one of the issues is a shortage of water. There was a huge drought that affected northern Mexico last year. In Monterrey specifically, where we're seeing this huge business boom. There are a lot of people without water for many days
on end. And there's some kinds of solutions, like the government is working on building a new aqueduct to the city to bring more water to it, but that's not going to get rid of drought or get rid of climate conditions that are making this part of the country difficult. AMLO's government has said, well, why don't companies go to
states where there's more water. It's going to be easier to guarantee them supply, and that there's a population issue, which is, if you build a bunch of factories, you need people to work in those factories, and those people are going to need water, and the country simply might not have it in certain states that have traditionally been the hot bet of investment, manufacturing, and therefore exports. The
other issues are things like the electricity grid. We talked to one manager at a plant who talked a lot about the headache of having power outages and the fact that he had to scrap some of the products that they were developing because their production lines would suddenly shut down.
And Mexico is certainly working on expanding its grid. There's been a big battle during this administration of exactly who should be responsible for electricity production and distribution, whether the state should have a bigger role, or private industry should have a bigger role, whether renewables should have a bigger
part in the industry as well. And we've seen some companies try to find workarounds they can produce some amount of their own electricity, but not the bulk of it for the scale of operations that we're talking about.
All My name is Spidro GRANMPA. I'm responsible for the operations of Quanta in Mexico. There's plenty of people talking about nilshore, and there's plenty of people talking about what the SATs made in China can said and the future made in Mexico. But I don't see, and this is my personal opinion, I don't see interialist strategy. Let's go to that way from our fertort is together with a tat autor it is about how to facilitate those processes or being set up in Mexico. So near shoring is
going to happen to Mexico. Don't know if it's going to happen to the contential.
Later. I guess another thing that they're facing is just finding enough workers. In the US, where there's also a lot of investment going into building chips and cars and other sorts of products, finding people who are skilled to do that work has been a real challenge. Does Mexico have enough people to fill out the ranks about these companies, I.
Think it's a constant growth. When we went to Montere, one of the selling points as well that the advertise is the skilled workforce. They talk about a lot of their universities and how it's very specialized for their teachings and how much they can add to the workforce coming into this production.
It depends if you need to hire sort of an engineer specialized in certain computers, or if you need to hire sort of assembly line workers who are going to be manually putting together parts. Certainly, Mexico has a lot of workers, and there's a competition between companies. We've heard about companies training workers and then having those same workers be poached by other companies because there is a high
level of demand right now. Unemployment in Mexico is a historic lows at the moment because there is such a great desire for this workforce. And you know, that doesn't mean that there aren't still people leaving Mexico to go work in the US where there are much higher wages, but it does mean that part of what's attractive about some of these big cities that already have a lot of manufacturing or experience in aerospace or in electronics is that they do have a certain amount of trained people.
We've talked about how the US is glad that a lot of these companies are moving to Mexico away from China, But is there any tension with the US? Joe Biden has a big plan to try to bring back a lot of manufacturing to the US. Is the US at all trying to lure those companies not to Mexico but to the United States.
This is a tricky thing for the US government. We've seen some firms look at both Mexico and the US and in the end have to make a decision about where they're going to end up. So we know that there is a certain amount of competition at the level of individual companies who are kind of going on tours and trying to figure out what's convenient for me. That said, this is a three way trade agreement between Mexico and
the US and Canada. In theory, it is still beneficial for the US government to have these companies moving to North America. Certainly, as you said, it might not want a big chunk of those companies to be Chinese companies, but it does want to have availability of products, and
there's a lot of back and forth production. Right There's certainly some industries where we see plans for cross border production, like with semiconductors, but investing in one place doesn't necessarily mean leaving out the other.
Later. Another question that often comes up about Mexico is crime, especially the drug cartels and violence. How does that enter into the calculations that companies thinking about Mexico are making.
They say, while it's still a concern, it's not yet the stopping point for us to be like we're moving to the US or we're not thinking about Mexico. But many say that the benefits outweigh the risks in terms
of what Mexico has been facing. So when they look at it, they look in the bigger picture, and when the plan to expand their operations in North America, they still see that Mexico has a better value with labor costs and the production and they do make that decision to continue despite the challenges.
Here's hose Maria Garza again, he's the CEO and president of GP Development and Construction.
Well, if you look at it from all perspective, construction and regal state is cheaper here than the US. Leases are less here than the US. We have access to the same finance, and our constructure costs is way lower, I will say forty fifty percent lower than the US. And manufacturing costs here in Mexico steel we are very very competitive worldwide. We can compete with any country.
In the world.
When we come back, Maya and Leda, tell us what this business boom looks like on the ground in Monterey. Lady, you mentioned how you and Maya went to Monterey, which is the site of so much of this activity. What's it like there? What did you see?
It's a boomtown. It's a city that is continuously growing, and it's very industrial. You'll drive around the roads and you see big trucks just clogging the highways.
Yeah, I mean, I think that developers are super excited about the amount of growth that is happening. It also means that the city is growing outwards, and so there are huge industrial areas where developers are trying to put up buildings that they think they can sell really quickly. And they can think they can sell them when they're half done, when there's no windows, when there's no ceiling
yet there's no doors. But there are companies that are interested enough that they'll put money down and say, okay, I want that building. Other companies are buying space instead of renting. Rental times have gone up, and so you walk around between these massive buildings that are in the middle of construction zones. But are still operating. Companies that already there are putting up new buildings nearby, and so everything looks a little bit half finished, and it's really
hot in summer. I have to say that's another challenge for people who live and work there. And all of these trucks are kicking up dust on the rate of the border and they get stuck in traffic jams, and you can see people from different parts of the world who have sent representatives to try to figure out is
Mexico the right place for us? Where all these other factors, you know, the heat, the building space that isn't that available right now, the electricity, the crime, whatever it is, are going to make it not that preferable.
And so we have all this activity pouring into Mexico, and yet one of the things you write is that there's a concern that this could be a cautionary tale, that Mexico has seen this kind of growth in them passed and it didn't last.
I think there was an idea in the nineties and even before that exports were going to be the big answer for the Mexican economy, that it was going to turn into this great manufacturer and this would make all the difference for its population, that people would be better off essentially because of all of this manufacturing, and that didn't exactly turn out as maybe the politicians at the
time expected. Since NAFTA went into effect in nineteen ninety four, which is the free trade agreement between Mexico, the US, and Canada, I think Mexico since then has had growth on average of about two percent, which is okay, but it also means that it's been surpassed in growth by other countries that were doing worse than it at the
start of the century. Countries like Turkey or Poland or Malaysia that are now bet are off, and so I think there's this sense in Mexico that maybe the bet on cheap labor in manufacturing and exports to the US didn't exactly work out. There's still millions of people in poverty.
There's certain government programs that have helped to reduce the poverty figure, but over a third of the country still lives in poverty, and a ton of people migrate still because they don't have enough work opportunities, and there's a big division in the country, and obviously a lot of states where the trade agreements have not worked in their favor.
There are places that had a lot of agricultural small scale agriculture of different kinds that were affected by all of the imports from the US, things like us Coorn and those areas of the country weren't benefited by the
trade agreements high in the nineties. There have been efforts since then to revise the trade agreement to make sure that it's more beneficial, to make sure that there's more attention to labor rights, But fundamentally, this is still a bet on exports, right It's a bet that exporting more will make Mexico richer, and if it becomes richer, the people who live there will become richer. That hasn't exactly
turned out to be the case. So I think there's this big question of who is going to end up benefiting. Is it going to be the foreign companies who are getting a really good deal because they are moving to a country that still has a lower cost labor force, they're finding open land that they can develop and it can continue to the export to the US market, Or is it Mexico and Mexicans who are working in all of these factories who are going to end up benefiting.
Later when you look down the road a year from now, five years from now, where do you see this story heading.
I think Mexico will still be looking to continue to enjoy this opportunity with near shoring as it attracts more companies coming into the country and take advantage of that. It's a big moment for Mexico. Now it's a matter of how they're going to take advantage of it for next years. We're seeing exports surging and hitting records. Will continue to see that trend moving forward, especially as companies establish themselves and officially begin operating in the country in
the coming years. So I think going into next year's elections, it's a matter to see what are the candidates' plans to continue this trend of near shoring and to continue to attract the companies so that Mexico can fully take advantage of this moment that's been presented and not repeat history as it's been for the last few years.
I think it's also an interesting election race. Right we have two leading women candidates, the candidate for the party of the president and the candidate for the opposition, So it's pretty likely that Mexico will have a women president for the first time starting at the end of twenty
twenty four. Certainly, both of these candidates are promising that they're women of the people, that they are going to pay attention to poverty, to the security issues, and that they are going to make sure that the country keeps growing. But exactly how they plan to do that, we don't know yet.
Hopefully we'll get our act together and whatever it's say in my inn a China becomes Nada Mexico.
Sooner leta maya. Thanks so much. This was just fascinating.
Thank you, Thank you.
Thanks for listening to us here at The Big Take. It's a daily podcast from Bloomberg and iHeartRadio. For more shows from iHeartRadio, visit the iHeartRadio app, Apple Podcasts, or wherever you listen, and we'd love to hear from you. Email us questions or comments at Big Take at Bloomberg dot net. The supervising producer of The Big Take is Vicky Vergalina. Our senior producer is Catherine Fink. Rebecca Shasson is our producer. Our associate producer is Sam Gabauer. Raphael
I'm Seeley is our engineer. Our original music was composed by Leo Sidrin I'm Westkasova. We'll be back tomorrow with another big take.