Nearshoring has the potential to transform Mexico’s economy and workforce. But could lack of education be a barrier to success?
Much has been written about how this once-in-a-generation nearshoring opportunity can bring billions of dollars of investment and millions of new jobs to the country. Perhaps most exciting is the fact that many of these jobs have the potential to be higher-skilled ones in areas like R&D, engineering, information technology, logistics, and more.
Industries as diverse as automotive, medical devices, aerospace, data centers and semiconductors, to name a few, will all be clamoring for skilled Mexican talent.
But will the talent be educated enough to support these investments?
Most business leaders and politicians tend to talk about four main areas where Mexico needs to significantly improve in order to take full advantage of the nearshoring opportunity: water, energy, infrastructure, and security.
There is no doubt that each of these areas needs major attention, significant investment, and step-change improvements. But what about education? Could that be a barrier to success as well? Let me share a few numbers.
Mexico continually scores among the lowest of the 38 OECD countries worldwide in standardized PISA tests.
The most recent 2022 tests showed 47% of Mexican 15-year-old students scored below Level 2 in reading (the OECD average for Level 2 or higher in reading is 74%). In other words, their comprehension skills will limit their ability to apply what they are reading in order to learn further. This means nearly one in two Mexican kids will be less prepared to work in high-skill jobs as adults — without significant, costly and time-consuming training conducted by the companies hiring them.
To help understand the scale of this problem for Mexico, I interviewed Andreas Schleicher, a German mathematical statistician and researcher who currently is the Director for Education and Skills at the OECD in Paris, France.
“Mexico’s schools today will be Mexico’s economy tomorrow,” he told me. “If Mexico could ensure that all 15-year-old students could achieve a Level 2 in the PISA reading exam, which is the level at which one reads for learning and understanding, it would add over US $6 trillion to the Mexican economy over the working life of these 15-year-olds.”
“Raising literacy levels is not a technically complex issue,” Schleicher continued. “Countries like Vietnam, Peru, and Colombia have all made rapid improvements on this matter.”
Many of the manufacturing jobs that historically were in China and are now being moved to Mexico were low-skill jobs. Every company that moves manufacturing to Mexico has to consider and assess how they will manage investments in two important aspects of the business: CAPEX and OPEX.
CAPEX stands for Capital Expenditures, which are for things like factories, equipment, automation, robotics, etc. OPEX stands for Operating Expenditures, which are investments in people — the employees.
Imagine for a moment that you are looking to move manufacturing from a plant in China to one in Mexico. You have to decide on the balance of investment that will go into CAPEX versus OPEX. To help make this decision, part of the evaluation process includes an assessment of the availability, skills and relative costs of the local labor force. If the labor force is relatively unskilled, the company will likely decide to invest less money in CAPEX and more in OPEX, resulting in a large number of low-skilled workers doing unskilled work.
This might result in more net jobs, but they will be low-paid ones with little chance to learn, grow and advance. This is obviously not ideal for Mexican workers in the medium and long term. The other option the company would have is to invest in a significant amount of automation (more CAPEX) that requires relatively few workers (low OPEX) due to the lack of availability of skilled workers. This isn’t an ideal option for Mexican workers either, as it would result in much less overall employment.
What would be ideal from the vantage point of the Mexican economy and workers would be for the companies investing in Mexico to have confidence in the level of education, skills and availability of the Mexican workforce, so that companies would invest in significant CAPEX (to do the most basic, low-skill work) while still allowing for significant OPEX to hire workers to do higher-level skills, like engineering, automation R&D etc.
Getting this right is incredibly important. It would allow for the maximum number of jobs to be created that are higher-skilled, higher-paid and have the potential to grow. Getting this wrong would be a huge missed opportunity for the country, resulting in mostly low-paid, low-skilled jobs that don’t allow for learning and growth of the workforce.
Is Mexico doing enough to improve education so that this sweet spot of hiring takes place?
The testing data would clearly show that it is not, but changing public education systems in any country is not a quick or easy process.
This is why some private organizations are stepping in to help fill the void. One such example is an organization called 311Literacy, which is focused on improving reading skills and comprehension for both Hispanic kids in the U.S. and Mexican kids.
311Literacy has created easy-to-use software that tracks reading time and comprehension across thousands of books. The organization has also created a bi-national reading tournament in which kids can win prizes and gain recognition for themselves and their schools. The most recent tournament was completed in May, and nearly 5,000 children participated.
The next reading tournament is scheduled for November of this year and has a goal of 50,000 kids participating. The goal of 311Literacy is to significantly grow participation further, inspiring kids to find the joy and rewards of reading.
Every business and political leader in the country should hope they are successful and embrace what they are doing, as success will lead to better-prepared young adults entering the workforce.
If you want to learn more about 311Literacy or help accelerate their work with your time, energy or financial resources, check out their website here.
Travis Bembenek is the CEO of Mexico News Daily and has been living, working or playing in Mexico for over 27 years.
Sadly, the system is archaic and abysmal.
Where do you teach at?
Thanks for some new facts! I have seen much progress in education of rural dwellers over the last 43 years. More young people are opting for higher education. I have seen youngsters from our rancho achieve great paying jobs. They are bankers, judges, business owners, engineers, politicians and much more. I was surprised at the low test scores. My 2 boys went elementary school through high school in México and both scored highly on college entrance exams in California and are now in great paying jobs in the States….
Roughly 13% of Mexican students go on to higher education
True nearshoring may require workers with high skills. But it will also use lower skilled workers. What is the ratio between high skill to lower skill workers required?
There are many high skilled people looking for higher paying jobs right now.
Sometimes standard testing can be misleading.
This is a VERY good article but your point is well taken. The question is this: How do you make knowledge a goal without dragging materialism, power and status along with it. Certainly we don’t want Mexico to become like the United States, do we?
Forget about the US. How about S. Korea, Finland or any of the Scandinavian countries as a model? They are some of the best educated people in the world, actually more so than the US.
The current regime tore up the hard won educational reform of the previous administration. It was almost the first thing they did upon taking office. As the now dominant political party relies on the votes of Mexico undereducated, I doubt you’ll see any meaningful advances in education. Under the current system a teacher need not be able to read or write. Teacher’s certificates can be bought, sold or inherited. By law, Mexicans must attend 6 years of school. Despite this, I have often seen Mexicans needing help finding their seats on an airplane because they couldn’t recognize neither letters nor numbers. It is Mexico’s greatest tragedy.
I am in no position to disagree, and the article seems to indicate that there is a problem now, but I come from 4 onsecutive generations of teachers and including 2 generations in Imperial Valley all very familiar with Mexico and have heard nothing but good things about education in Mexico but none is current.
There are always good teachers in every systems. With roughly 2 million teachers in Mexico, and having been in 100s of schools, I have met a lot of good teachers. However, the inertia of the system makes change extremely difficult to achieve.
There is no necessary gain in investment except to which it transcends fuedalism.
There are many people seeking jobs that pay all over the world and if mexico has a lack of skilled workers… there are many across the border who are skilled. What comes around goes around… And now it may be time for United States citizens who are educated to look south. Someone had to say it!
Forget about the US. How about S. Korea, Finland or any of the Scandinavian countries as a model? They are some of the best educated people in the world, actually more so than the US.
Mexico will no longer participate in the PISA test, ostensibly because it is “neo-liberal” but the real reason is because of the poor quality of Mexican education which shows up time after time on the exam and is frankly embarrassing. Rather than improving education in Mexico, the current regime has further dumbed it down and has continued to grossly underfund it, choosing to spend the money on the Tren Maya and other projects. There are thousands of schools in Mexico with deficient physical plants, e.g. running water, electricity, windows, basic equipment, etc. Most schools are on double or triple session and many teachers need to prepare lessons for their groups in more than one session and in more than one school. Class size is overwhelming even for the most skilled teacher. One can teach primary (primaria) and even middle school (secundaria) with as little as a normalista certificate, which is approximately the equivalent of a HS diploma. Text books are currently geared toward producing ideologically correct people rather than well educated ones. Mexico must drastically improve its education system if it is to improve the lot and lives of its citizens and do so by successfully competing in the current global society while still maintaining its traditions and culture.
Sr Carl – you know what you are talking about, Pretty much spot on! Thank you
The answer will become obvious as soon as the people in charge decide to value education over indoctrination.
So all Mexico must do is “significantly improve” water, energy, infrastructure, security, AND change its public education systems (K-college) “in order to take full advantage of the nearshoring opportunity.”
Respectfully, I’m wondering: When, exactly, is all this going to happen? How, and by whom, will critical independent and parallel milestones be managed, surpassed, and success measured? And who, exactly, is going to pay for all this tremendously expensive activity?
It’s reasonable to assume Mexico has a cohesive plan. If so, can Mex News Daily please publish it in English so that readers can be better understand something that purportedly has “the potential to transform Mexico’s economy and workforce”?
The economic returns of 2023 and Q’s 1 and 2 of 2024 — arguably the period of time that has been nearshoring’s first measurable 1.5 years of, perhaps, a 5-year window — aren’t overly promising. Business moves fast and craves certainty. I’m hard-pressed to see how the enormous amount of difficult and costly work that must happen comes together in such a compressed period of time. Seeing the aforementioned plan would help greatly. Thank you.
Jalo,
Good questions and comments. I don’t think anyone knows when these issues will be solved to be quite honest. That being said, some progress has been made on some fronts and we strive to bring you those stories. In other areas, very limited progress has been made and we have been covering what the new administration is promising to do in these areas. We will continually report on progress and actually have some deep dive special series in the works and coming soon.
For whatever its worth, I always try to look at Mexico’s “problems / opportunities” not in isolation, but rather in context to the rest of the world. China, despite its many strengths, has some significant weaknesses as well. Russia was a BRIC star country just a few years ago and yet now is off limits from an investment standpoint. Brazil and India have great potential, but also significant challenges. With that perspective and context, Mexico has great potential, but whether it is realized or not will largely depend on the ability of both the public and private sector to improve the issues mentioned.
Let’s hope it happens! MND will be there to report on it!
Well said – keep up the great work you are doing!
Travis,
Thanks so much. I’ll look forward to the deep dive series! Like you, I think the opportunity is a great one for Mexico. Also, like you, I see things like the nearshoring opportunity in context of the larger world. In order to attract companies to Mexico, many if not most of the international companies will be deciding to move from wherever they’ve been doing offshore work–to Mexico. And it strikes me that, as I indicated in my initial comment, Mexico has, perhaps, a 5-year window to “show” (and “prove”) itself in terms of having significantly improved water, energy, infrastructure, security, and education. We’re at the 1.5 year mark and words (as promising and hopeful as they can be) ultimately won’t cut it for meaningful international business–they’ll cut and go elsewhere (or stay where they are and have been). Speed and stability will be critical the next 3.5 years. Here’s hoping!
Using the US as an example is very valuable, but not in a way you would expect. You can see the results of the US education system failing the public in the years past and now in the present. It takes very little to look at the highest paid jobs in the US and the family income based on ethnicity. #1 India, #2 Chinese. Why? because companies in the US could not fill those jobs with the current population of Americans and needed to Green Card immigrants to fill the needs. This has created another impact, Homeless and Drugs. Depression and inability to work at a job that provides a standard of living that Americans are used to. The same thing will happen to Mexico. If a company can not fill a skilled job with a local citizen, they will bring in someone from the outside that can. Business is the best indicator of the Education of a Country.
Here is an idea. Instead of trying to improve education with only academic ideals, work with the industries on they need. Like the automotive technology schools in the US. Too much knowledge needed on the job is learned on the job.
Yes, a basic academic education is important. But more technical education is needed.
Concerning the standardized tests, except reading, the tests, in most part, are a regurgitation of academic education.
Have the industries get involved with education. Like Caterpillar being involved with a junior college.