Mexico offering Canadian manufacturers space to grow as domestic market lags
A new report says a number of industrial segments are in a strong position to take advantage of Mexico's economic reforms and young population
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OTTAWA—Faced with slow economic growth in Canada over the past several years, and little hope of a stronger domestic market as the population ages, Canadian companies may find solace by looking south, according to a new Conference Board of Canada report.
Mexico, currently the fifth-largest destination for Canadian goods exports, has been a popular region for Canadian manufacturers in the years following the 2008 recession, with merchandise exports to Mexico increasing 30 per cent over the past five years. And as the country pushes through reforms aimed at bolstering its institutions and promoting economic growth, Mexico will continue to offer Canadian industrial firms opportunities they wouldn’t find at home, the report says.
The study, which was commissioned by HSBC Bank Canada, identified 14 industrial sectors, including auto parts, plastics, aerospace and food manufacturing, that stand to benefit from doing business in Mexico.
“Given Mexico’s clear cost advantage, Canadian firms will find it difficult to compete on this front,” Linda Seymour, executive vice-president and Head of Commercial Banking at HSBC Bank Canada, said. “However, they can compete by offering innovative and differentiated products and services, leveraging the latest available technology, and making the most of Canada’s highly skilled workforce.”
Of the 14 industries studied, the report pointed to three sectors best-suited to take advantage of Mexico’s expected robust growth and young population. The primary metal, chemical and machinery manufacturing industries all have the capacity, high growth potential, export momentum, and strong export growth expectations that should translate to success in Mexico, the report said. Meanwhile, the 11 other industries all met three of these four criteria.
Still, even without factoring in the growing uncertainty with NAFTA under U.S. President Donald Trump, shipping product to Mexico is no small task.
“To identify business opportunities in Mexico, it is also important for Canadian companies to have a network of useful contacts on the ground, as well as an in-depth understanding of the market,” Seymour added. “Doing business in Mexico does not come without its challenges. But, companies can overcome these challenges, as long as they are committed to this market for the long run.”