Mexicans are creative and entrepreneurial: some of the world’s best-known technologies have their roots in Mexico. Guillermo González Camarena patented the world’s first color television, while Luis Miramontes co-invented the progestin used in the first contraceptive pills, and Mexican writer Victor Celorio invented InstaBook, which binds books in one step and just two minutes. Referring to his country’s long tradition of science and innovation, President Enrique Peña Nieto is right when he says “Mexico should recognize, value, and take advantage of the great worth of our human resources.” It is the Mexican entrepreneur that has been, and will continue to be, the strength of the nation’s economy and the driver of innovation.

Mexico’s drive to innovate has not gone unnoticed: during his trip to Mexico City in May 2013, President Obama described the emergence of a “new Mexico,” referring to the country’s evolving and growing economy. Traditionally, Mexico’s economy was closed, heavily regulated, and based on protecting its national industries from competition through import substitution and a major focus on the exploitation of its natural resources.

However, by working with cross-party support, President Peña Nieto has passed a raft of unprecedented reforms impacting upon every sector of the economy that are creating a wealth of opportunities for overseas businesses as well as empowering domestic players to establish partnerships with them.

“Enrique Peña Nieto has helped in creating healthy competition and has taken the measures required to end the oligopolies and monopolies that ran this country for so long, and directly benefitting Mexican SMEs. The result is that Mexico is more attractive than ever for foreign investment: it’s a place where businesses can compete on a level playing field,” says Arturo Beteta de la Garza, the managing director of Condulimex, a company that has developed some of the world’s most innovative and advanced electric conductors. “We’ve succeeded by using innovation and technical development, by making quality products that sell internationally. For example, the United States, one of the most difficult markets in our sector, purchase an important percentage of our production,” he adds.

Mario Salazar Lazcano, managing director of Dirac, Mexico’s pioneering engineering consultancy firm with almost sixty years experience, explains how the market in Mexico has evolved: “The reforms, were necessary, and the government has done well to implement them in a single term of office. The continued growth of foreign investment shows that this country is internationally recognized as a stable environment for business.”

Since 2014, in a bid to attract further investment, the government has also been creating new industrial centers in the country’s central Bajío region, as well as further south in Oaxaca and Chiapas. This will further encourage FDI in high-tech manufacturing sectors such as the automotive and autoparts sectors, aerospace, pharmaceuticals, and biotechnology.

“Our company is growing as this country opens up to international markets,” says Saúl Iruegas Aguiñaga, director of Balper. The company has garnered major clients in the automotive sector, allowing it to expand in the burgeoning Bajío region. “We’ve seen significant growth in San Luis Potosí and Guanajuato. We were quite late to open in Querétaro, where there is already a booming aerospace industry that has attracted players like Bombardier. That said, we are now seeing growth in the automobile industry in San Luis Potosí and Guanajuato. We are building a warehousing facility for the automobile sector, which is our biggest project at present,” he adds.

BUILDING STRONGER TRADE TIES

Mexico’s growth over the last two decades is in large part due to the North American Free Trade Agreement (NAFTA), which has set the foundation for greater investment opportunities in science and technology.

Mexican trade has become inextricably linked with the United States. Mexico is now the gateway to the biggest market in the world – NAFTA – worth almost $20 trillion. Its network of free trade agreements gives it preferential access to 45 countries with a combined population of 1.3 billion people, representing almost two thirds of the world’s GDP.

Mexico has a built-in advantage of proximity to the United States, the number one outbound investor and top exporter of manufacturing jobs. Trade between Mexico and its northern neighbor has grown by nearly 30% since 2010, to more than half a trillion dollars annually.

Now, Mexico and 11 other Pacific Rim countries, including the United States and Canada, are set to implement an ambitious trade pact that cuts trade barriers, sets labor and environmental standards and protects multinational corporations’ intellectual property. The Trans-Pacific Partnership is designed to encourage trade among the United States, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.

The pact, which the U.S. Congress still has to approve, is expected to open up new trade opportunities for Mexico in the Asia-Pacific market, the region that has seen the greatest economic growth over the past 25 years.

Luis Gilbert González, managing director of L.J. Iluminación, which specializes in commercial and residential lighting, underlines the changes underway in Mexico: “As a country involved in globalization, Mexico and its private industries are constantly improving,” he says.

After enjoying high growth rates over the last four years, the economy slowed down in the first half of 2015, and, as a result, Mexican companies are being encouraged to actively explore new investment partners from overseas.

“The country’s service sectors are on hand to provide in-depth knowledge and experience for overseas companies looking to take advantage of the opportunities to partner with local players in Mexico,” explains Gustavo Almaraz Montaño, CEO and founder of lobbyists and political consultants Grupo Estrategia Política.

“Companies willing to open markets in Mexico need allies that can guide them.

There are companies that lose their way here when they fail to address questions that affect local, regional, and national legislation such as the environment or what local communities need. We can provide surveys and research in this regard,” says Almaraz Montaño, adding: “We also start with a map explaining who is the governor of each state, where oil reserves lie, the characteristics of each state, its population, the competition, as well as the key political players. This kind of information is fundamental for companies looking to enter the market here.”

COMPETITIVE LABOR COSTS

Recently, according to the IMF, manufactured goods from Mexico have claimed a larger share of the U.S. import market, reaching a high of about 14%, while China’s share has declined. Mexico is now the second-largest source of high-value, high-tech products such as cell-phones, gaming consoles and computers, after China, manufacturing and assembly offer real opportunities for SMEs.

With labor costs rising rapidly in China, U.S. manufacturers of all sizes are looking south to Mexico with an eagerness not seen since the early years of NAFTA in the 1990s. Francisco Matabuena Pelaez, managing director of lighting fixtures and fittings manufacturer Grupo Adesi, says “Countries like China, which are our main competitors in terms of manufacturing, have become expensive. Additionally, the national market wants more and more products, just like the rest of Latin America.”

Higher labor costs in China have shifted the equation in global manufacturing. Average manufacturing labor costs in Mexico are now almost 20% lower than in China. There is also an important regional distinction that should be taken into account. A significant portion of U.S. export-oriented middle and high-end manufacturing takes place in northern Mexico, especially around Monterrey, which is a major steel producing area. The electronics industry is also important and contributes greatly to the economy of northern states like Chihuahua, Baja California and Tamaulipas. At the other end of the spectrum, low-end manufacturing of goods like clothing and textiles is continuing to expand in southern Mexico.

With a growing youth population and expanding manufacturing sector, the requirement for industry-specific education has also heightened. As a result, an increasing number of private companies are investing heavily in human capital. Companies like Altec-F, a leader in manufacturing electrical equipment such as medium and high voltage fuses, are recognising the need to train – and retain – Mexican talent, Alfonso Ávila Ramírez, general director of Altec-F explains: “We [Altec-F] want to teach what we have learned in order to train new technicians in this discipline…There is a fundamental problem in this area. We need to link industry and education to prevent talented Mexicans leaving to the US and Europe, so we need companies, by way of a social commitment, to teach them.”

MEXICAN WORKERS ARE IN DEMAND

“From border cities like Tijuana to the Bajío region, where new factories are filling farmland, Mexican workers are increasingly in demand,” notes Luis Felipe Mariscal, managing director of Finamigo, which works to encourage people to move from the informal to the formal sector, a trend that will help to improve the country’s tax revenue.

“Mexico has a lower per capita tax collection rate compared to our neighbors. Everybody needs to be making their contribution to funding health, education, and security,” adds Mariscal.

In order to support the needs of high-tech manufacturing industries, cities looking to attract international companies need an ample supply of one crucial resource: educated and trained workers. “One of the things that has helped Mexico’s manufacturing industry to evolve from relatively low-skilled labor jobs to more advanced industries is its emphasis on developing its workforce with the right skills,” says Salvador Kin Feregrino, managing director of machine tool and engineering services company Mitsuguh.

If there is one conclusion to be drawn from examining foreign direct investment in Mexico, it is that stronger international trade agreements and coordination produce longer-term business partnerships. Active business coordination, like those with the United States, and increasingly with the European Union and other major trading areas, encourages deep investments that withstand the year-to-year vagaries of the financial markets. As the United States and Europe emerge from crisis, there are companies looking to Mexico, a country that continues to build on the changes and reforms of the last four years.