12 / 17 / 22
Nearshoring: what distinguishes Mexico from other countries?
MEXICO CITY, MEXICO, Dember 17th, 2022 – Its geographical location and international trade treaties such as the USMCA offer the country significant advantages to boost this activity.
In recent months, there have been several conversations with regard to nearshoring and the implications it has for Mexico, as it represents a unique opportunity for the country’s economic growth.
Due to the increase in transportation and logistics costs, this topic has gained relevance, also by considering the benefits of having plants that can supply components and products practically immediately to manufacturing centers, such as the United States of America, one of the largest markets in the world.
Thus, nearshoring represents an opportunity for companies to relocate and transfer part of their production to third parties located in nearby countries, with the aim of reconfiguring global value chains and optimizing supply chains.
Mexico, having concluded a free trade agreement with the USA and Canada (USMCA), offers a solid platform for promoting trade between these three countries, which is why we have seen a particular trend in recent years, where a large part of Asia’s production processes have been relocated to Mexico.
The open discussion about Mexico being the biggest beneficiary of nearshoring raises the curiosity to understand what is behind its sex appeal, in comparison to other countries.
Mexico’s overview: benefits and challenges
Some of the advantages that Mexico has over other countries are the following:
- Geographically, Mexico benefits from its strategic position as a neighboring country to the United States, the world’s largest importer. The physical proximity to this country greatly improves shipping times, logistics services, and the current existence of ports for the shipping of a wide range of products. In addition, time zones have been a major problem that has generated the need for companies to relocate, especially in the case of Asia.
- As previously mentioned, the various international treaties to which Mexico is a party today is another advantage, especially the USMCA as it is a proven path that facilitates trade and creates synergy between our country, the United States of America and Canada.
- Regarding labor costs and human resources, Mexico’s labor force is highly qualified and very competitive. In addition, there are two relevant factors to be considered: lower logistics expenses and a significant reduction of risks due to shorter distances.
- Mexico’s experience in manufacturing products such as automotive, aerospace, household appliances, pharmaceuticals and textiles.
- Finally, the trade war between China and the United States that escalated in recent years, and which is still ongoing, provides an opportunity to boost investment in Mexico.
During the period from January to September 2022, according to Mexico’s Ministry of Economy, the country attracted more than USD$32.147 billion in foreign direct investment, of which manufacturing represented 36.3 %. Likewise, the real estate market has reflected a strong demand for industrial space from foreign companies wishing to relocate their businesses.
Certainly, Mexico faces challenges for it to be consider a nearshoring power; some of which are:
- Continue to invest in infrastructure in the northern and southern regions of the country.
- Strengthen the connectivity and security of infrastructure through Mexican railways, roads and ports.
- The government’s intention to concentrate the generation and supply of energy in the state-owned Federal Electricity Commission (CFE) has become a controversial issue and the main limitation for the arrival of new companies seeking to relocate in Mexico, a situation that is being resolved within the USMCA and that poses uncertainties for the immediate future, in addition to the lack of electricity capacity for new industrial parks.
Despite the challenges that Mexico must face and tackle as soon as possible, nearshoring is happening. Proof of this is the direct invitation that President Joe Biden’s administration extended to Mexico for participating in multi-million-dollar investments in the semiconductor sector.
In this regard, semiconductor companies that are going to build new factories in the US will require support from neighboring countries as part of their supply chain, which will promote Mexico. Evidence of this is the announcement made by the Mexican Ministry of Economy that just over 400 companies are interested in relocating to Mexico.
Therefore, the future trend of nearshoring is optimistic, which we expect to have a positive impact on the economy and the creation of jobs in Mexico.
The full article was made in collaboration with Lexlatin, and you can find the original article in Spanish herein: https://lexlatin.com/opinion/nearshoring-que-hace-mexico-mas-atractivo-frente-otros-paises
All the information placed in this article and the rights of distribution belongs to Lexlatin.