5 Site Selection Themes for Mexican Manufacturers Considering the U.S.

The United States is receiving increased interest from manufacturers with their proverbial eggs in the Mexico basket. Site Selection Group, a full-service location advisory, economic incentive, and real estate services firm is experiencing tremendous activity from industrial companies wanting to evaluate the United States as an alternative to the production capacity they currently have south of the border. 

While these companies have faced pressures such as being closer to the U.S. consumer market, as well as achieving the moniker of Made in America, it is clear the current political rhetoric around implementing tariffs is driving the exploration of an American production strategy. 

For companies in industries like automotive, medical devices, consumer products, construction products, and others, there are several nuances associated with the current site selection landscape in the United States. Below are five themes that are different from operating in Mexico.  

1. The U.S. regulatory climate 

While Mexico certainly has regulatory practices in place around environmental and construction standards, it is fair to say manufacturers can expect those guidelines to be more stringent in the United States. Local zoning codes dictate permitted uses for specific locations, and interpretations for many common manufacturing processes can be nuanced. Rezoning a property is not guaranteed and can be a lengthy endeavor. 

Companies can also expect to navigate a rigid local permitting process for different phases of construction, which can vary greatly from one location to another. Similarly, the time required to satisfy state air permitting requirements is dependent on a facility’s emission profile and can also vary greatly by geography. 

2. A different and dynamic landscape for critical utilities

The most pronounced utility trend in the United States at the moment is constrained electrical service. The U.S. is experiencing an electric generation and transmission crisis where industrial (and data center) demand is currently outpacing supply. Due to lead times on critical electrical equipment (transformers, switchgear, etc.), and the process for designing, permitting, and constructing substantive upgrades to transmission and distribution, achieving an electric solution in many locations can range from 24 to 48 months. 

While it is common in Mexico for manufacturers to provide their source for process water (wells, surface water, etc.) as well as their own solution for wastewater discharge, the United States typically offers more convenient solutions. Except for exorbitant users, companies can largely benefit from municipal services for water and sewer. 

3. Lucrative economic incentive opportunities from entities other than states

Economic incentives in Mexico can be heavily state-focused. Because of this experience, many Mexican companies considering the U.S. underestimate the economic incentive benefits from entities other than the state. In the U.S., there are several attractive regions that offer local and utility incentives that are more lucrative than what they’ll likely receive from the state. 

4. Scarce quality industrial land sites but a glut of existing buildings on the market

This article from the Financial Times does a nice job of explaining the shortage of quality industrial sites across the country. In summary, recent activity from manufacturers, and more recently data centers, have cannibalized many of the industrial sites that possess key utility (electric, water, sewer, and natural gas) and transportation infrastructure. 

Conversely, CoStar data indicates there is more vacancy of industrial shell buildings across the country than at any point within the last 10 years. This is due to overbuilding by institutional investors at a time when the e-commerce sector stalled, and interest rates rose. Most of this product is available close to the larger consumer markets but can range anywhere from 75,000 square feet to 1.5 million square feet. 

5. U.S. workforce customs are remarkably different than Mexico 

The wage disparity between Mexico and the United States is widely understood. But in addition to hourly wages ranging from $20-$30 an hour for basic manufacturing occupations, Mexican manufacturers can expect to pay an additional 40%-50% for their benefits burden. This is inclusive of things like health insurance, retirement, fringe benefits, and government mandates. 

Despite escalated labor cost, manufacturers in the United States do not shoulder other workforce burdens common to Mexico. For example, companies can expect their employees to provide their own transportation, whether that be via their personal vehicles or public transit. Additionally, it is not commonplace to fund and provide meals for their workforce. 

The U.S. can offer a compelling value proposition

Optimizing your geographic footprint requires locations that offer logistic efficiencies, favorable workforce climate, availability of adequate real estate product and utilities, reduced operating costs, and enhanced economic incentive opportunities. Those opportunities still exist in the U.S. Whether conducting a high-level benchmarking comparison or executing a full site selection project, an experienced firm like Site Selection Group can help guide you through the process and significantly mitigate risk.