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.
