Foreign Direct Investment in Latin America and the Caribbean 2017

Foreign Direct Investment in Latin America and the Caribbean • 2017
Chapter III
159
New requirements for emissions and energy efficiency have increased the costs of
both production and research and development (R&D), which has led manufacturers to
seek cost savings in other areas. One strategy has been for automobile companies to move
operations from their industrialized economies of origin to developing countries, a process
that has enhanced Mexico’s importance —and that of other emerging economies close
to large markets— as a destination for productive investments, focused mainly on vehicle
assembly. In addition to geographical proximity, a broad network of free trade agreements,
active sectoral policies and a favourable attitude towards foreign investment, labour costs
have become a key determinant in the relocation of the auto industry’s production facilities.
The current average wage for auto plant workers in Mexico stands at US$ 2.38 per
hour, in comparison to approximately US$ 24 per hour earned by workers in the United
States (see figure III.4) (Welch and Cattan, 2017). Hence, manufacturing in Mexico
instead of the United States generates labour cost savings of between US$ 600 and
US$ 700 per vehicle, which represents close to half the cost savings made when
producing vehicles in Mexico to be sold in the United States (CAR, 2017a).
Figure III.4
United States and
Mexico: average hourly
wage for workers and
unsupervised employees
in the automotive
industry, 2007-2017
(Dollars per hour)
35
30
25
20
15
10
5
0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Vehicle manufacturers
in the United States
Suppliers in the
United States
Vehicle manufacturers
in Mexico
Suppliers
in Mexico
24.2
Mexico
2.4
United States
Manufacturing in Mexico
instead of the United States
generates labour cost savings
of between US$ 600 and
US$ 700 per vehicle.
Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of information from United States Department of Labor, Bureau of Labor Statistics,
and National Institute of Statistics and Geography (INEGI) of Mexico.
Mexico has become the main destination for foreign investment in new North
American assembly plants and an increasingly important destination for the deployment
of a new network of suppliers in the bloc (see figure III.5A). In recent years, and
especially after 2010, a large number of international automakers have closed some of
their domestic production lines in order to establish a manufacturing base in Mexico.
Companies from the United States invested heavily in Mexico, and while German and
Japanese companies prioritized investments in the United States, they have gradually
been increasing their presence in Mexico (see figures II.5B and II.6).