Why tech firms are investing in Mexico

Amidst an ongoing chip war between the US and China, investments in Mexico are making the country a hot destination for hardware manufacturing in the AI space. At the request of AI companies in the US, Taiwan-based companies are ramping up production efforts in Mexico, the Wall Street Journal reported March 31.

Three’s a crowd. A 2020 free-trade agreement between the US, Mexico, and Canada has brought in billions from manufacturing companies “aiming to move operations from China to Mexico,” the Journal also reported. The recent nearshoring efforts and investments into Mexico are beneficial to Taiwan, the US, and Mexico, according to Ryan Yonk, coauthor of The China Dilemma, who told IT Brew that “labor costs” and the “relative closeness to the United States,” in both a physical and governmental sense, make the country an attractive spot.

“A major part of why places like Mexico or China are attractive is that…while not the lowest labor cost that you can find in the world, [they offer] a combination of skilled workers and labor costs that are well below the manufacturing costs in the US,” he said. “Couple that with the regulatory environment and climate and suddenly, things are a lot more interesting for a Taiwanese company to operate [in Mexico].”

This ain’t Texas. Why aren’t these specific nearshoring operations we’re seeing in Mexico moving closer to home, in a place like Silicon Valley? Chris Miller, the author of Chip War, said it would be too costly at the moment.

“Costs in Silicon Valley are too high for much of this assembly and manufacturing work, though we are seeing some of the most automated and high-value add parts of the manufacturing process happen in the US,” Miller told IT Brew in an email.

On the domestic side of chip production, the US also has its eyes set on Arizona.

The Biden administration announced in February it would give GlobalFoundries, a US-based scaled semiconductor foundry, $1.5 billion to “build and expand facilities in New York and Vermont,” according to the WSJ. In April, the US also announced plans to invest in TSMC, a major Taiwanese chip firm, and the world’s largest chip -maker. Per a preliminary agreement, the Biden administration plans to give the company up to $6.6 billion in funding and $5 billion in proposed loans, with the money going toward expansion and building efforts as the company seeks to construct a third fabrication plant in Arizona, NBC reported on April 8.

Headquartered in Taipei, Taiwan, Foxconn—the world’s largest electronics manufacturer and a major supplier for Apple—has churned out $690 million over the past four years towards investments in Mexico, the WSJ reported. Mexico is also home to some of Foxconn’s facilities that develop AI servers for major tech companies like Amazon, Google, Microsoft, and Nvidia, according to the WSJ.

Other Taiwan-based manufacturing companies that have expanded to Mexico include Inventec, Pegatron, Wistron, Compal, and Quanta Computer, according to the WSJ.

IT Brew has reached out to Foxconn, Inventec, Pegatron, Wistron, Compal, and Quanta Computer for comment. The companies did not immediately respond to IT Brew’s request for comment.

“Mexico is one of the most viable locations for computing hardware manufacturing in the Western Hemisphere, but it has a long way to go before it reaches the scale of China or Taiwan,” Miller said.