As the nature of each business will demand different workforce characteristics – from more manual-labor-intensive production lines to back-office support functions – labor is a key factor to be considered when assessing destinations that are more or less in line with what each company seeks in terms of talent. Having clarity of which are the labor requirements for the new operation, the assessment must consider a few related elements.

Labor Availability

• The north, west and central regions of Mexico enjoy the highest degree of manufacturing sector development, with a much larger pool of skilled labor (88%) than the south and southeast regions – which have a historical economic development gap.
• The central region presents advantages over the north in terms of skilled labor, with more universities/tech schools per 100k inhabitants (8 versus 3) and people employed in manufacturing (40% versus 37%).
• Cities in the north region near or at the border such as Tijuana, Ciudad Juarez, Reynosa etc. have significant talent pools and has traditionally served as a key region for assembly operations (known as maquila) that leverage temporary import tax/duties benefits.

Labor Costs

• Average salaries for skilled labor in the north are 40% higher (USD 680/month) compared to the west and central regions (USD 480 USD/month) while salaries for unskilled labor are 42% higher in the north.
• Salary levels for professionals are generally aligned among major cities in the north, west and central regions, e.g. USD 2,150 – 2,600/month for a production engineer, with some cities in the central region being very competitive, e.g. USD 1,200 – 1300/month in Leon, Irapuato and Celaya.
• Most competitive wages are found in the south and southeast regions, though they lag behind in industrial and skilled labor development, apart for specific industries such as oil & gas in the states of Tabasco and Campeche.

Labor relations

• Mexico has a long tradition of union organizations, and 90% of production workers at companies with 25+ staff are unionized. The recently signed USMCA treaty includes tools to quickly enforce labor laws, help fight corrupt unions and improve working conditions to reduce the gap between the U.S and Canada.
• Labor relations are generally good throughout the country. There have been few labor strikes in the last four years (142 strikes within a universe of 5 million economic entities – a sign of good labor relations. Most of these strikes have been concentrated in the west region 48%, mainly in state of Jalisco – 39% of the total and 81% of the region, and the north region 35%, mainly in Tamaulipas, 27% of the total and 78% of the region.

Nearshoring your operations is not simply about placing factories or offices as close as possible to the border of the target market. Besides the fact that there may be multiple target markets such as the U.S. and Europe, the availability and cost of the inputs your operation relies on must also be taken into account. The following factors can provide a good preliminary estimation when developing a business case to set up operations.

Land and lease

• As expected, large cities present higher costs for land due to limited space, whereas smaller cities with more availability and expansion capacity of industrial parks present lower costs. This can drive significant land cost differences up to 5x-10x depending on the cities under evaluation, e.g. Mexico City at USD 183/m² vs Reynosa – USD 36/m². On average, the west region has higher costs for industrial real estate at USD 76/m², followed by the central region at USD 70/m². The southeast region is gaining momentum at USD 57/m², with the development of cities such as Merida and the large potential development the trans-isthmus project will bring to the region.
• There is a deficit of available space versus expected demand due to local/foreign investment and the nearshoring trend. The cities in the Bajio subregion (central Mexico) have a better space availability (5.7% of total space) compared to the average across the north, central and west regions (4.8%), with the cities of Celaya, Irapuato and Leon offering particularly high availability (7.4%).
• Toluca, greater Mexico City, Monterrey and Guadalajara exhibit the highest land (USD 200/m² average) and leasing (USD 5.30/m² average) costs. Smaller cities in the north and central regions exhibit 30% – 70% lower costs on average.

Energy and water

• Energy costs vary across the country based on the regions and tariffs set by the national electricity authority, CFE. The energy demand intensiveness of the business can make these city/state differences a key factor for location decisions. As of 2021, cities in the north region had the most competitive energy costs, 10-16% lower than Mexico City and most cities in the central region.
• Cost variance for water is greater than for energy across sub-regions/cities, though the cost of water is much lower than energy and may be subsidized through official investment incentives in certain cases. The north region is 25-40% more competitive in water prices than the central and west regions.

Transportation

• The northeast states’ proximity to the border and location correlated to the “middle” of the U.S. makes them more competitive in terms of logistics costs, in general, than states in the central and west regions for serving the US market.
• Many plants located in Mexico serve other markets beyond the U.S. For operations established to serve additional markets, such as Europe, or those with a high dependence on imported raw materials e.g., from Asia, a location closer to Mexico’s major ports such as Manzanillo, Veracruz etc. is a smart choice – making cities in the central region the most attractive.
• The ideal location from a transportation perspective will depend on the relevance of imports/exports to other regions versus trade with the U.S. and the nature of the goods transported.

When assessing the location of a new operation, evaluating qualitative factors can be as important as financial considerations. Gaining clarity on qualitative matters such as how safe one location is compared to others, if companies in similar industries already exist there or how good the infrastructure in the area are highly relevant and can have a significant financial impact on the final decision.

Security

• Mexico is a relatively safe destination for manufacturing investments, despite bad press particularly associated with significant violence episodes in some border cities such as Ciudad Juarez.
• Large industrial cities in the northeast region such as Monterrey and Saltillo rank high across factors such as vehicle theft, homicides, kidnapping and crime – with rates being 35-75% lower than the national average.
• Some cities in the south region are considered some of the safest in the country, with Merida leading nationwide with the lowest figures in terms of vehicle theft, kidnapping and crime.
• The Bajio subregion has had a recent spate of crime mainly targeting strategic government operations mainly related to fuel transportation. Cities such as Leon, Celaya and Irapuato have high rates of homicide and crime, consequently scoring low on security perception by the population.

Industrial development

• The largest cities have traditionally been magnets for national and foreign industrial investment, having turning into industrial poles. This concentration in a few cities/regions has diminished over time and allowed other cities to industrialize, especially in the wake of NAFTA/USMCA and FTAs with other regions.
• The Bajio subregion has attracted a large share of investment, now surpassing many cities in the north – as reflected in industrial GDP per capita. Combined, the cities of Leon, Queretaro and San Luis Potosi now have more industrial plants with over 100 employees than Monterrey, a traditionally industrial city.
• The northeast region has 20-60% more installed energy capacity than the central and west regions, with future availability being a challenge as several investment projects have lagged behind.

Logistics infrastructure

• Federal and local governments have invested in developing logistics infrastructure to support Industrial development and growth, with states like Queretaro in the Bajio subregion successfully sustaining, planning and developing projects to attract investment.
• The main industrial cities have good access to major highways, with support from the government and foreign investment. Cities along the major highway corridor from Mexico City to the Texas border have a competitive advantage for goods transport to the U.S.
• Greater Mexico City and the central region cities benefit from good access to ports in the Pacific, e.g. Manzanillo, and the Gulf, e.g. Veracruz and Altamira.

Sustainability

• Despite recent regressions, Mexico has progressed in its environmental policies, though specific conditions must be considered depending on the type of industry and processes.
• Water availability and conservation is becoming a challenge nationwide due to climate change and overexploitation. Expected access to renewable water is low in central and northeast Mexico, with the Bajio subregion generally scoring the lowest overall. Guadalajara, Puebla and San Luis Potosi have made significant efforts to improve water utilization and renewal.
• The northeast and central regions present similar mid-to-mid-high scores in terms of wastewater treatment, with outliers such as Greater Mexico City having very low scores given significant topographical constraints that limit capitalizing the available opportunities.
• Reforms to energy laws and campaigns to promote foreign investment have led to advances in alternative energy sources. The south and southeast regions have the most installed capacity of renewable energy (Veracruz, Oaxaca and Campeche states). The Bajio subregion cities have a mid-range score in terms of availability, with the northeast region and Greater Mexico City trailing behind by far.

Finally, incentives can have a huge impact on decisions to select a certain destination for setting up a new operation. It’s not uncommon for governments at the national, state or city level to grant benefits packages to attract investments. These can be as large as multi-year tax exemptions or specific incentives such as land grants, infrastructure investments (e.g. roads), services grants (e.g. water) and more. When making an overall calculation for a nearshoring business case, it’s critical to consider such potential incentives as an integral part of the location assessment.

• States and city authorities are keen to offer incentives to attract investments, making it advisable to start conversations with these early on when evaluating potential locations.
• The current federal administration is placing particular focus on the development of the south and southeast regions of Mexico, specifically the area where the trans-isthmus corridor is being developed – an interoceanic alternative to the Panama Canal aimed at reducing international freight transit times. Incentives being granted by the federal government include a full income tax full exemption for five years followed by a 50% exemption for the subsequent three years, property tax exemptions, VAT exemptions (for trade between companies located in the corridor) and more.