Mexico has become one of the most competitive countries in the world regarding industry investment and international business development. As stated in the video, “How Mexico is Winning the Car Manufacturing War,” over the past ten years, Mexico has developed a triple threat in the manufacturing industry. They have become suited as the “first choice destination for top of the line work” (National, 2015). Whereas in the past, Mexico was seen as destination strictly for lower cost production. Their reputation comprised that of producing “shoddy” products, but now global partners are recognizing the quality of Mexican production and comparing it to that of the United States or Canada (National, 2015). Therefore, with the combination of three noteworthy leads, they hold a competitive advantage in car manufacturing over Canada.
Their first advantage being, Mexican workers work “harder and for a lower wage” (National, 2015). The workforce of Mexico earns one tenth of the wage a Canadian worker would, doing the same day to day job. They are passionate about their work and want it to be completed at the highest standard possible. Their productivity levels are growing at a rate between “six and eight percent each year” (National, 2015). And due to their willingness to try new things, they are learning and producing at higher levels of efficiency equating to higher profit margins. Therefore, this is an extremely attractive combination to manufacturers; Cost reduction and increased profitability.
The second advantage being, Mexico is a free trading country. Mexico possesses a network of free trade agreements that grants superior access to forty-four countries. Therefore, manufacturers’ will have the ability to export to an increasing number of countries with cheaper transportation costs. Without tariffs on exports, manufacturers are said to be saving ten percent of transportation costs, per vehicle exported. When exporting millions of vehicles a year, a savings of 10% is momentous.
Third: The young Mexican population is becoming increasingly educated and skilled. Firms are taking it upon themselves to train their workers whom are “willing/wanting” to learn new skills in order to increase productivity (National, 2015). This creates a pool of specialized labor who share ideas, and experience which contribute a higher value to the businesses success. Firms are pleased to trust the work of advanced manufacturing in Mexico when not even ten years ago, Mexico was strictly used for basic assembly work.
On the contrary, Canada is losing. Their opportunity cost is significantly higher than that of Mexico in the production of vehicles. Their labor is ten times more expensive, they have restrictive trade and their workers are less motivated. Therefore, they are less productive, making it less efficient for firms to maintain manufacturing plants in Canada. Recognizing the advantages Mexico has to offer, companies are investing billions of dollars into building specialized warehouses as their main manufacturing home base, creating an extremal economy in Mexico.
The expansion of the automobile manufacturing industry results in: Specialized equipment, labor pooling, knowledge sharing, and overall benefits both the firms as well as the Mexico’s economy resulting in a dynamic long run efficiency. Mexico is said to be the fourth largest auto exporter in the world, producing around “2,500 cars a day reaching three million exports last year”( English, 2013). Based on their increased levels of education, productivity, lower wages and free trade agreements, Mexico has a long term competitive advantage over Canada.