Mexico’s Economic Environment and its Impact on Manufacturing

Mexico is currently being hit by a one-two economic punch: a weak peso and historically low oil prices. Since January of 2015, the value of the Mexican peso against the United States dollar has dropped 25 percent. A weaker currency makes imports more expensive, but it is typically offset by the increased value of dollarized exports.

With exports accounting for nearly one-third of the country’s GDP, Mexico’s economy (and its manufacturers) are closely tied to outgoing goods, particularly with the United States. In fact, cross border trade with America totals more than a billion dollars a day. And generally, Mexico’s large percentage of exports balance out any price volatility between the peso and the dollar. Unfortunately, that hasn’t been the case recently: 32 percent of Mexico’s government revenue stems from oil exports and oil prices are historically weak.

How Does this Affect Mexico’s Manufacturers?
In June, Mexico’s manufacturing sector PMI dropped to its lowest level in 11 months due to the weak exchange rate. When 60 percent of the polymers processed in Mexico are imported, these higher borrowing costs can greatly affect the bottom line. While most manufacturers are trying not to pass the price variances off to their customers, the exchange rate is making it difficult for Mexico manufacturers to maintain a competitive environment.

Higher costs for customers will mean an increase in inflation, as well as potentially a slowdown in investments in large purchases, such as machinery or software, because of fear of high payments or simply because the items are now too expensive.

But it is not all bad news. Despite the macro economic factors impacting Mexico, the automotive and aerospace manufacturing sectors are growing strongly, providing many plastics and metal fabricators with new opportunities.

What Can Manufacturers do to Combat these Challenges?
Operating in countries outside of the United States brings its own set of unique challenges. Volatile exchange rates, language barriers and cultural differences can all contribute to business struggles. Whether you are headquartered in another country or operating plants remotely from the United States, you are likely looking for ways to cut costs in other areas to offset currency volatility.

A comprehensive, manufacturing-specific ERP solution is the best tool to help you achieve the most efficient plant. With features that reduce scrap rates, eliminate machine downtime, maintain minimum levels of necessary on hand inventory, add shifts without adding employees, smart load your work centers based on historical performance data and optimize your production runs, you can achieve 100 percent capacity with the plant and equipment you have on hand.

Whether you are considering purchasing an ERP or MES solution for a new or already established plant in Mexico, for the most successful results be sure to consider a vendor that offers the software in Spanish, is compliant with the latest Mexican fiscal regulations and offers a bilingual implementation and support network.