Geopolitics, Uncertainty Could Fuel New German Business in Mexico

Q: With a new administration leading CAMEXA, what are the primary shifts and objectives you have defined to navigate the trade landscape between Mexico and Germany?

A: We want to continue the excellent work of CAMEXA, serving as the natural and logical liaison for German companies in Mexico. This involves connecting the German business community with the government, addressing current economic affairs, and navigating the overall business climate. We must continue to be that strong, robust link, recognizing Mexico's importance as the largest business partner for Germany in the Americas, second only to the United States, just as Germany is the number one partner for Mexico in Europe.

The footprint of German companies in Mexico is highly significant. This includes not only major German corporations but also a large number of SMEs, which are a vital part of CAMEXA. There are over 2,100 German companies in the country, with approximately 750 being CAMEXA members. 

CAMEXA is also the natural starting point for new German companies interested in developing their business in Mexico, whether through direct investment, establishing commercial offices, or simply seeking a better understanding of the business landscape. In these cases, we play a crucial role by supporting and developing tailored concepts for new ventures, investments, or the creation of commercial outposts. Furthermore, it is vital to support existing German companies that are planning reinvestments or expansions to better serve their clients and markets. In such instances, CAMEXA facilitates access to information and acts as a direct liaison with government authorities at the federal and state levels to support these important projects. 

The objective remains the same, although the context is currently one of great dynamism and, regrettably, considerable uncertainty due to geopolitical issues, tariffs, and other discussions where Mexico and the German companies operating here play a significant role. This is a very special moment that requires continued collaboration, not only through CAMEXA but also with the various associations and forums we participate in. We highly value the close relationship we currently maintain with Mexican government authorities across various ministries and political actors, as this proximity allows us to effectively bring investment projects and key concerns to the table.

Last but not least, it is important to mention that CAMEXA, as a binational chamber, not only is a partner to German companies, but also to Mexican businesses. We support them in German-Mexican networking and in evaluating opportunities in the German and European markets. Germany offers an attractive and open-minded consumer market for many Mexican products. There is still great potential here for many Mexican suppliers.

Q: Beyond established sectors like automotive and machinery, what industries present the greatest opportunity for further trade promotion?

A: When discussing investment and manufacturing in Mexico, the initial focus is typically on the automotive, machinery, and aerospace industries. However, a highly interesting phenomenon has been developing over the past few years.

Recently, we have seen significant investment announcements from pharmaceutical companies, including some German firms. This represents a positive shift. We view the current government's recognition of the pharmaceutical industry as a pillar of the announced Plan México as highly important.

Beyond these traditional sectors, we are observing similar robust development in other industries. There is a significant increase in companies directly or indirectly linked to the appliance and electronics markets, with German companies in this sector announcing and developing new investments. Furthermore, we are seeing substantial growth in the personal care and home care sector, which includes cosmetics, cleaning products, and personal hygiene goods. A significant number of German companies are seeking to expand their production capacity in Mexico to serve the growing local market and to export, primarily to the United States. This trend in personal and home care products is a clear reflection of the nearshoring phenomenon extending into these consumer sectors.

Finally, the food sector also presents a very robust opportunity. We are participating in projects and discussions with clients in the agricultural, animal protein, and processed food markets. This sector is experiencing interesting growth and expansion, not only to meet increasing local demand but also for export, particularly to the United States.

While the automotive, aerospace, and heavy manufacturing sectors remain prominent, it is crucial to emphasize the positive development across all these newly mentioned sectors. European, and especially German, companies are keenly interested in developing business here, leveraging Mexico as a local platform and a regional export hub. In the pharmaceutical area, I would also highlight the enormous market potential for future German investment in the medical devices sector. This industry, which includes many German small and medium size SMEs and start-ups, offers a substantial growth opportunity in Mexico.

Mexico is strategically located next to the US market, the most important individual market globally. The trade volume between the United States and Mexico in both directions is approximately US$2 billion per day, making this one of the most important global economic blocs. This highlights Mexico's importance and the difficulty of easily replacing it. Therefore, despite the geopolitical uncertainties and tariffs, Mexico is positioned to emerge even stronger than before. 

Mexico has gained relevance that is difficult to change overnight. The fundamental strength of the North American bloc is clear, and Mexico continues to play a vital, almost indispensable, role for the US economy and vice versa.

Q: How can Mexico leverage the recent expansion of German pharma companies to strengthen its domestic production of raw materials and strategically reduce the sector's reliance on global suppliers like China?

A: The trajectory of the Mexican pharmaceutical sector will be intrinsically linked to policy decisions made by the US government regarding its own pharmaceutical industry. The United States is focused on increasing investment and repatriating production, not only of finished pharmaceutical products but also of Active Pharmaceutical Ingredients (APIs). 

This strategy is coupled with a significant increase in R&D investment by pharmaceutical laboratories in the United States, creating domestic ecosystems for the production of ingredients, additives, and APIs. This strengthening of the pharmaceutical sector in North America will inevitably have a direct and positive impact on Mexico. 

Historically, the pharmaceutical industry in Mexico has not benefited from the competitive advantages available to many other manufacturing sectors. What is a competitive edge for most production activities in Mexico is not necessarily so for pharmaceuticals. Therefore, recent investment announcements are a very positive signal. Companies are obligated to review their global and regional footprints, leading to investment and capacity decisions. Mexico now has a significant opportunity within the USMCA framework to reimagine its pharmaceutical industry, allowing it to participate more actively in regional production and eventual export of finished medicines. 

We anticipate interesting dynamics in two areas: API production and, most significantly, Custom Manufacturing and Development Organizations (CMDO). Given the operations in the US in this space, we must closely observe how USMCA will govern the relationship between the two nations, specifically seeking any tariff advantages that could allow Mexican production to participate in the US market, which has historically been a challenge. 

The timing is exceptionally interesting because the current Mexican administration has positioned the pharmaceutical sector as a fundamental pillar of Plan México, which we greatly appreciate, especially after the sector was unfortunately stigmatized during the past administration. This offers an opportunity to actively participate in this new regional dynamic. We recognize that approximately 70% of the pharmaceutical industry in Mexico is still oriented toward the public sector. Nevertheless, we believe there is a great opportunity for pharmaceutical laboratories in this area, which could also generate momentum for the development of the private medical sector in Mexico. Finally, achieving the capability to export finished products from Mexico would be a historic step for a sector that has never traditionally possessed the strong export DNA characteristic of other Mexican manufacturing industries.

Q: Recognizing Mexico's role as a regional hub and the presence of other European chambers, what is the competitive advantage of German companies across industrial sectors?

A: The reputation of German industry, culture, technology, and science is exceptionally strong in Mexico. This provides a robust foundation of mutual trust for developing projects. 

Germany is Mexico's No. 1 business partner in Europe, and Mexico is Germany’s No. 1 business partner in the Americas after the United States, even surpassing the business volume with the larger Brazilian economy. Despite the challenges frequently encountered, German companies that have come to Mexico have developed, reinvested, grown, and transformed the country into a regional or even global platform. 

Mexico's great receptivity to receiving and supporting the intentions of German companies is key to this success. In terms of education, the presence of German schools and cultural organizations like the Goethe Institute fosters cultural closeness, which is essential for building relationships between nations. Germany contributes significantly through dual education programs developed in Mexico, often offered through chambers and associations, or directly by private sector companies. These programs, frequently based on the model promoted by CAMEXA, allow young trainees to learn technical skills at school and gain practical knowledge in a company.

This cooperative channel offers a valuable tool for German and local businesses to develop talent. Mexico possesses a unique opportunity in terms of human capital: it is the country with the most university graduates in technical engineering careers globally, producing approximately 400,000 new engineers every year. This is a very significant pool of talent. While support is needed to develop the specific profiles required by various organizations, the availability and development of this talent pool are crucial for establishing plants and driving manufacturing in Mexico. 

Q: In Germany, what is the current reputation of products and services with the Hecho en México label, and what challenges do Mexican companies encounter when trying to expand beyond traditional sectors?

A: The ease of exporting from Mexico to Europe largely depends on the specific market, product, and sector. It is essential to recognize that the European market is one of the most regulated globally, with requirements stemming from individual countries, as well as the overarching European Economic Community in Brussels.

Therefore, for Mexican companies, or any firm producing in Mexico with intentions to export to Europe, the primary hurdle is the imperative to be extremely solid in establishing and adhering to these regulatory parameters. This must be the first and main consideration.

Beyond the regulatory aspect, there are no fears or restrictions regarding products made in Mexico. On the contrary, Mexico enjoys a very good reputation in many sectors, particularly the automotive industry. Manufacturing modern vehicles in Mexico involves high-value-added production. Today, Mexican plants participate on an equal footing with the exact same demands for efficiency and quality as the European, US, or Asian plants of the same multinational corporations.

There is no taboo; Mexico is often an integral part of a global footprint for many companies looking to participate in global markets. The history and discussion center on the need for regulatory compliance, competitiveness, and a clear commitment to long-term client relationships in Europe and Germany.

Q: What are the primary non-economic challenges that German companies are most concerned about regarding Mexico, and how is CAMEXA helping them to navigate this environment?

A: We maintain a very frank and open dialogue with the German community in Mexico and with various government entities. We recognize the strong effort and leadership, particularly from the Ministry of Economy (SE), in closely engaging with us to understand our challenges. These challenges are not unique to CAMEXA or German companies; they are shared across many sectors and communities.

Our primary concerns fall into four main areas: security, infrastructure, energy, and simplification. When we discuss infrastructure, we refer to the entire system necessary for logistics and supply chain: roads, rail transport, and ports. This is a two-way street, supporting both Mexican imports and exports. We are in permanent dialogue with the government to improve our competitive position in this regard.

On the energy front, the need for a competitive and sustainable source is clear. We need a better understanding of the government's energy sector objectives and initiatives to ensure an efficient, competitive, and reliable supply. A major concern is that many of our clients are exporters to highly regulated markets that demand green energy as a process input to be exempt from green taxes or emissions duties. Currently, Mexico lags in providing a clear, competitive, and sustainable energy matrix that meets these stringent expectations for corporate responsibility.

Historically, Mexico was a less complex country for doing business, but we are unfortunately observing a trend toward increasing complexity. Bureaucracy, processes, permits, and licenses are becoming more challenging. Simplification is paramount. This involves streamlining government procedures, licenses, and processes necessary for attracting investment and developing our businesses. Simplification of customs procedures is also a common concern. We are actively working with agencies like the Ministry of Environment and Natural Resources (SEMARNAT) and the Federal Commission for Protection Against Sanitary Risks (COFEPRIS) to increase efficiency. No one is against necessary regulation, but it must be sensible and grounded in science.

Finally, there is an issue with fiscal scrutiny. We see an increased, arguably excessive, tax scrutiny in Mexico, which has negatively impacted on companies’ capacity to develop their businesses. We need processes to comply with tax laws that are simultaneously simplified, allowing businesses to continue operating satisfactorily.

Q: What are CAMEXA’s main objectives to ensure the long-term sustainability and growth of German-Mexican trade relations?

A: Our priority is to continue cultivating the strong relationships we have with government entities, at the federal level and with state-level authorities. We have seen very interesting support and initiatives from state governments in Mexico aimed at attracting greater investment and maintaining thriving business ecosystems. We must not overlook the profound social aspect of our work: creating jobs for Mexicans. The private sector is the most heavily involved in direct job creation, which has an immensely positive social impact on Mexican society. For perspective, Mexico's middle class is estimated at between 25 and 30 million people, but nearly 50% of the population still does not actively participate in the formal economy. Our path forward involves aligning our goals as socially responsible companies with the government's pursuit of the welfare of Mexican citizens. The positive impact of job creation by German companies, whether CAMEXA members or not, is highly significant.

This investment and job generation indirectly help mitigate societal risks in Mexico, such as migration for economic reasons and criminality, and also support essential areas like education and talent development. The agenda continues to be firmly focused on this social contribution and everything it entails. Simultaneously, we aim to serve as a liaison for Mexican companies interested in developing business in Germany. Another key agenda item is how CAMEXA can motivate German government authorities to increase their presence and frequency of visits to Mexico to allow the German political and business sectors to better understand the realities of Mexico firsthand.

The Mexican-German Chamber of Commerce and Industry (CAMEXA) promotes bilateral trade and investment between Mexico and Germany. With 750 members, it serves as a representative of German economic interests, offering services from market entry to professional development. As part of the global AHK network, CAMEXA facilitates business connections and supports firms in both countries.