The Search for New Reasons to Manufacture in Mexico

Oct. 16, 2006
Each year some U.S. companies look to Mexico as a place in which to better position themselves in a burgeoning global market. The first attraction is

Each year some U.S. companies look to Mexico as a place in which to better position themselves in a burgeoning global market. The first attraction is no doubt savings in labor costs. Another reason is real estate prices that are significantly lower than those in the U.S.

The trend to relocate manufacturing plants has been going on since the 1980s and has created a cut-throat competition among economic development entities of Mexico's 32 state governments, regions and privately owned industrial parks. Tax breaks, land availability and logistics infrastructure are leading lures for companies seeking shelter in Mexico.

The competition has not gone unnoticed by American real estate developers. They, too, have followed the money to Mexico. Among the companies that have major operations in Mexico, one of the most visible is ProLogis (Denver, ProLogis is investing $238 million to acquire almost one million square feet of industrial real estate—both built and undeveloped—in order to position itself as the country's leading provider of real estate services.

"Mexico was the first nation in which ProLogis expanded in order to meet demands of the maquiladoras industry," explains the company's senior vice president for the country, Silvano SolÌs. The company's first move was in Ciudad Ju·rez to serve industry across the border in El Paso, Texas. Since then ProLogis has expanded operations into major industrial cities, including Monterrey—where it is now headquartered—Guadalajara and Mexico City. He sees "a growing demand for high quality facilities."

The maquiladora concept—to import components duty free, add value and then export them—has now faded under NAFTA and, says SolÌs, new trends are developing.

"Mexico's nearness to the U.S. is a key selling point for continued development of manufacturing in Mexico," claims Solis. "Today, the Mexican consumer market is growing while products that had final assembly in plants here some 20 years ago no longer exist. Now the manufacture of products that can be distributed and sold in Mexico as well as abroad is in a beginning."

ProLogis executive director Jeff Schwarz adds that the huge investment required to establish ProLogis as Mexico's main industrial real estate supplier has taken a great deal of planning.

"Over the past 10 years the Mexican economy has experienced significant growth," says Schwarz, "due in large part to banking reform, currency stabilization and other important infrastructure improvements. This growth is pushing expansion of the country's middle class, their purchasing power and demand for consumer goods."

The $238 million investment includes 18 buildings in six industrial parks. Five of them are in Mexico City, and one is in Guadalajara, representing a total of 114 acres that already boast 89% occupancy. Success, says SolÌs, is based on an extension of U.S. business into Mexico. Some 25% of occupants are part of what ProLogis terms its "Focus 500" list that targets expanding companies.