There are few people who know Mexico better than Dan Restrepo. Currently a senior fellow at the Center for American Progress, he spent six years as the principal advisor to President Barack Obama on issues related to Latin America, the Caribbean, and Canada. And he is now urging tech companies to follow their peers from other industries into Mexico to take advantage of the wider North American market that is in many ways merging.
Restrepo highlights how the automotive and aeronautics industries have moved from the United States into Mexico. At one time, this was solely based on manufacturing, with the big three automakers looking for labor-cost savings. But in time, as the Mexican providers grew more sophisticated and the nation’s schools produced more engineers, suppliers increasingly began incorporating design and value-added work into the process.
One large German car company, for example, recently set up a design center in Puebla. It has an agreement with the Tec de Monterrey to provide a pipeline of engineers it needs, from both a production and design standpoint. And just like that, innovation is coming from a location that was originally appealing due to its low costs.
“Mexico is starting to make that transition from just being a place that people build things to a place where people design and build things. And that’s a very important move. That’s the move that South Korea pulled off. That’s the move that Japan pulled off.” – Dan Restrepo, former LatAm advisor to President Obama
“Mexico is starting to make that transition from just being a place that people build things to a place where people design and build things,” said Restrepo. “And that’s a very important move. That’s the move that South Korea pulled off. That’s the move that Japan pulled off. That’s the move of the economies that have truly emerged — that is what they do. They go from just being a platform for people to come do stuff more cheaply to a place where there is also significant intellectual value added.”
Restrepo, who served as special assistant to President Obama and senior director for Western Hemisphere affairs at the National Security Council from 2009 to 2012, says aerospace represents a similar story. And he sees the energy and telecom following this path now that they have been reformed and opened up to more competition. The technology and IT service industry is right in line as well, as companies continue to realize that not only is there talent in Mexico, but just being there is a competitive advantage all of it’s own. More and more, as borders stop seeming like barriers, major firms are not seeing the United States, Mexico, and Canada as three markets — but as one.
“You turn on your television and you see the T-Mobile ads about free roaming in North America or call packages that include the U.S. and Mexico as a single cellular market,” said Restrepo. “That’s an example of where we’re headed.”
Companies that launch investments and partnerships now are setting themselves up for long-term success. Because not only are the obvious, national markets merging. Having a foothold in the Mexican market also helps firms access the massive, lucrative Spanish-speaking population living in the United States.
“You’re also seeing U.S. companies recognizing the value of being part of, in essence, two emerging markets: Both Mexico as an emerging market and U.S. Latinos as an emerging market,” said Restrepo. “If U.S. Latinos were a standalone economy, we would be the world’s 12th largest economy. We would be a member of the G-20. That’s 55 million people, a trillion and a half dollars roughly in purchasing power. That puts the U.S. Latino GDP on par with Mexico’s GDP — and basically tied for second place behind Brazil as the largest Latin GDP … Companies are starting to realize that there are plays into Mexico that are also plays into this kind of shared economic space.”
The path is clear, and he says that the IT expansion, tech incubators, and entrepreneurial innovation now commonplace in areas like Guadalajara, Monterrey, and Tijuana show that this industry is moving along the same route. Mexico’s economic transformation is occurring all across the country in all sectors. Now, it’s just up to individual companies to decide whether or not they want to join the party.
“You see AT&T going back into Mexico and making a pretty big play into Mexico from an infrastructure and services perspective. You’re going to see more of that,” said Restrepo. “That new connectivity that is coming to Mexico is — that is occurring at the same time that you have a lot of engineers graduating and you have this North American sector-by-sector integration happening — that kind of all adds up to much more opportunity to innovate and be part of the value-added part of the economy.”