Nearshoring: the opportunities and threats for investing in Mexico

With the nearshoring trend in the economic dynamic worldwide, it’s noticeable that conditions In Mexico are desirable not just because of its proximity to the United States but for the advanced trade infrastructure and adherence to the rules of the United States-Mexico-Canada Agreement (USMCA).

Mexico also has some different factors for getting an advantage when compared with other countries in the region, such as:

●         It’s the third country with more airports globally, with 2,315.

●         The United States-Mexico border is 3,100 km long and includes 40 border crossings.

●         The country has 102 ports and 15 out-of-port terminals.

●         There are 27,000 km of railway tracks.

●         The transportation infrastructure includes 365,000 km of roads.

Challenges and risks

Nearshoring has plenty of factors that favor operations In Latin America and Mexico, but there are also challenges to consider. Some challenges can act as obstacles to attracting foreign investments but understanding them allows investors and enterprises to find solutions:

●         Talent pool: referring to Mexico, human capital is perceived as having limitations in sectors such as technology, but in 2022, 110,000 university students received their engineering degree, and the country has a reputation for its skilled workforce, which contributes to the automotive and aerospace sectors. 

●         Sustainability: the barriers established by the Mexican government in the renewable energy sector have provoked growing concerns about the country’s commitment to sustainability. North American efforts to accelerate the energy transition are pushing Mexico to take more steps to a sustainable path.

●         Regulatory risks: the political actions of the Mexican government raised concerns for different industries that feared the regulatory environment, but controversy has been concentrated in the energy sector.

●         Labor issues: the implementation of the USMCA was a key element for labor reforms to benefit Mexican workers in 2019 and 2020.

●         Operational challenges: challenges include public infrastructure deficiencies and uncertainty regarding the reliability of electricity as a power source.

Organizations can address risks following some recommendations, according to the consultancy firm:

●         Regulatory, security, and active threat monitoring.

●         Robust risk assessments, information security, and intelligence capabilities.

●         Internal controls to identify fake invoices and high-risk payments.

●         Customize corruption and legal policies to the local legal framework.

●         Compliance with certifications and implementation of additional procedures for risk mitigation.

●         Update security and risk assessments to identify critical operations.

Nearshoring to Mexico represents an excellent opportunity for Mexico and Latin America. Frontier Industrial offers industrial land for sale in the Mexican market and industrial buildings for sale in the most productive areas to develop different industries. If you plan to establish operations in Mexico, contact us and ask for our portfolio.