Expanding to Mexico is an option being explored by a large number of foreign companies. The advantages offered by Mexico in terms of lowered labor costs, technical proficiency of workers and the 44 nations that the country partners with as a result of the North American Free Trade Agreement, has quickly positioned the U.S.' neighbor to the south as one of the world's most popular offshoring destinations.
Automakers are especially interested in doing business in Mexico. The country's auto cluster has been one that has grown significantly over the years. A number of well-known vehicle manufacturers have established a manufacturing base in the country and many have made significant investments into strengthening their operations in Mexico. All of this has allowed the country to expand its economy and better position itself to attract the attention of companies in a wide range of industries.
"GM recently entered into a power purchase agreement with Enel Green Power."
According a report from PricewaterhouseCoopers, Mexico's auto industry generates more foreign currency that flows into the country than any other industry. In addition, the mass production of vehicles accounts for 21.6 percent of the country's total manufacturing activity, while contributing 3.8 percent of Mexico's gross national product.
The foreign automakers operating in the country also combine to employ more than 551,000 people and offer workers the most competitive pay of any other industry, the PwC report found. It is clear that the production and export of vehicles out of Mexico will continue to be a cornerstone of the country's economic viability. One vehicle manufacturer is looking to expand its activity even further in Mexico.
General Motors to rely on wind energy at its Mexico plant
Part of Mexico's plan to establish itself as a prime offshoring destination is the overhauling of its energy policies. According to Project Syndicate, for many years, the country's natural gas, oil and electricity was state owned. However, government officials quickly realized the need to modernize not only the energy production needs of the country, but delivery as well.
Mexico is also open to the use of more renewable energy sources. This directive caught the attention of U.S.-based auto company, General Motors. The company recently issued a press release stating that it will power its 104-acre vehicle manufacturing plant located in Toluca, Mexico.
GM recently entered into a power purchase agreement with Enel Green Power, a company that will begin building a wind farm in Palo Alto, Mexico in Q2 of this year. After the project is completed, GM will then use 34 megawatts of wind power generated from the farm to run its factory operation. Currently, GM relies on 104 megawatts of power from renewable energy sources and would like that number to increase to 125 megawatts within five years.
"Our commitment to sustainable manufacturing processes is one way we serve and improve the communities in which we work and live," Jim DeLuca, GMs executive vice president of global manufacturing said. "Using more renewable energy to power our plants helps us reduce costs, minimize risk and leave a smaller carbon footprint."
Bloomberg wrote that GM will also use the power generated by the wind turbines to run its other factories in San Luis Potosi, Ramos Arizpe and Silao.
"Mexico is an ideal location for our first wind project," Rob Threlkeld, global manger of renewable energy at GM, said. "Energy is fed to a national grid, making it easier to reduce or add energy capacity at a facility."
Mexico's renewable energy commitment growing
With more foreign companies expanding to Mexico and setting up manufacturing operations there, the strain on the country's current energy supply will be felt in short order. This is one of the key reasons Mexico is making a push to expand its renewable energy capabilities.
"Mexico has 60 gigawatts [of installed capacity]," Guillermo Gutierrez, a representative of investment management company BK Partners, told Renewable Energy World. "In order to meet demand we will need 110 gigawatts by 2024. So that's a really big challenge. We believe that with the new regulatory framework and the new transparency, it is something that can be achieved."
Mexico's government has de-privatized its energy sector, thus allowing foreign organizations to come in and implement new processes that are more streamlined and efficient. This is the impetus for the expansion of the use of renewable energy in the country.
Not only are wind farms being constructed, but the viability of solar energy is being explored as well. Renewable Energy World wrote that Mexico is planning to increase its wind power production from 1,332 megawatts to 8,922 megawatts over the next three years. The country also anticipates that its solar energy output will grow from the 54.6 megawatts recorded in 2012 to 627.5 megawatts by 2018.
The overhauling of its energy sector to more sustainable sources is just another reason why offshoring in Mexico will continue to become more prominent and popular.