Mexico is a beautiful and vibrant country, but it has historically been saddled with its fair share of economic challenges. However, Mexico may be finding an intriguing way to capitalize on its strengths – through nearshoring. Nearshore outsourcing could provide a unique opportunity for the nation both to find work in the international market and further develop the Mexican economy. In this blog post, we will examine what nearshoring means for Mexico and why it should be embraced by businesses within the country as well as abroad.
A growing number of businesses are exploring nearshoring, and Mexico is one of the nations that is benefiting most from this time due to its border proximity to the United States, its participation in trade agreements like the USMCA, and its skilled labor force.
When the COVID-19 pandemic hit, many exporting businesses that relied on Chinese production experienced supply chain disruptions. This situation sparked interest in the nearshoring idea, which entails shifting some of a company’s production processes to third countries to cut costs, particularly labor costs.
Although Southeast Asia, particularly China, and India, has long been the ideal location for nearshoring, investments have discovered Mexico to be a strategic ally because of its labor standards, skilled workers, shortened logistics times, and affordable transportation prices.
Due to the fact that North American corporations started to sense dangers associated with their intellectual property, increase in salaries, lengthy transit times, and increased issues with supply chains a decade ago, the nearshoring movement in Mexico was already foreseen and irreversible. “But as the trade battle between China and the United States heated up under the Trump administration, this tendency started to pick up speed. The challenges in supply chains and the strengthening of trust in the trading relationship with Mexico as a result of the successful negotiation of the new trade agreement furthered the trend.”
Mexico is a desirable location for nearshoring because it is the major trading partner of the United States.
According to projections from the Inter-American Development Bank (IDB), nearshoring may raise Mexican exports to the US by 35 billion USD. In the coming years, the three nations are projected to substitute at least 25% of their Asian imports with goods made in North America, according to Mexican Foreign Minister Marcelo Ebrard.
Factors favoring nearshoring in Mexico
Geographic proximity. It is not difficult to envision the advantages that Mexico’s closeness to the United States brings in terms of logistics, communication, transactional speed, and other aspects. The similarity of the cultures and, practically, the absence of a schedule difference also contribute to the ease of doing business between both countries.
Trade agreement. The ratification of the United States, Mexico, and Canada (USMCA) trade deal provides businesses with the assurance and framework they need to make investments with confidence. These regulations’ requirements also encourage manufacturing and assembly operations in Mexico.
Skilled labor. Although wages are competitive, the most crucial factor is the quality, abundance, and constant growth in educational programs to increase skilled and specialized labor. That is labor with experience and technical capacity to perform highly specialized work.
Supply chain. Adds to the advantages of nearshoring that Mexico offers. Logistics are facilitated and made more flexible by the region’s close proximity to the United States. The nation also has a sizable and diverse supplier base, which guarantees a flexible and competitive chain.
The border region with the United States, along with Mexico City, Guadalajara, and Monterrey, are the key nearshoring markets in Mexico. Some markets in these areas stand out due to the scale of their built-in inventories, the amount of land that is accessible and has the infrastructure needed to support manufacturing operations, and the involvement of investors with vast experience in the development of the industrial real estate. This list includes markets such as Tijuana, Ciudad Juárez, Mexicali, and Reynosa, on the border; Saltillo and Chihuahua in the north; Querétaro, Guanajuato, San Luis Potosí, and Aguascalientes in the Bajío and, finally, Puebla in the central zone.
Unearth the hidden gems of the business world by exploring Mexico’s ever-evolving terrain! Dive into the realm of international business and tap into numerous opportunities waiting for you in this top destination for foreign investments. Embrace the dynamic Mexican experience as you bridge the gap between theoretical learning and real-world application by visiting Mexico City in your next global immersion.