Nearshoring to Mexico: advantages and savings for foreign companies
By Editorial
December 1, 2022
During the
last two or three decades, the offshoring phenomenon – which consists in having
production contracts with overseas country suppliers, mainly from Asia - has
lost appeal. Everyday there are more companies that consider relocating this
part of their supply chain to a nearer country – in terms of where their base
of operations is.
This
practice is known as nearshoring. Nearshoring
to Mexico has grown last years and the country is taking advantages of
this.
Nearshoring: change of tide
According
to the analysts, the main reasons that made the global enterprises stop viewing
China as an investment destination for manufacturing operations were the cost rise – especially in workforce –
and the tariff war with the US.
Regarding the first point, the “World Salaries Report” of the International Labour Organization, reveals that real salaries in China doubled between 2008 and 2019, far exceeding the global growth rate.

Wage growth rate, 2006-2019
The
commercial confrontation between the two countries tha started in 2018, represents 500 billion dollars annually in
reciprocal taxes. This quarrel speeded up the decision of companies to
reduce their investment in China.
All this
happened while there were problems with
intellectual property piracy, cases of labor exploitation and supply delays
caused by environmental disasters or health emergencies, such as tsunamis and
the COVID-19 outbreak.
All these
facts have made Mexico the main comercial ally for the US. It’s a status that
the country kept until july-september 2020, with a commercial exchange of 86
billion dollars, according to the US Commerce Department report.

Source: Bank of Mexico.
What is nearshoring? Why is it important to Mexico?
Nearshoring
is the arrival of foreign investments
for bringing production centers and processes closer to a target market and
taking advantage of favorable conditions in the destination country.
For Mexico
and the US, these conditions come mainly from the trade agreement signed by the
two countries and Canada (T-MEC).
Nearshoring to Mexico have clear benefits for strategic
areas of the Mexican economy, such as the automotive industry. BMW’s car
manufacturing factory in San Luis Potosi is an example: starting operations in
2019, it has attracted the main providers of the German brand to establish in
the region.

Source: AMIA (Mexican Association for Automotive Industries)
Advantages of nearshoring to Mexico
Nearshoring
to Mexico has geographical and
demographical benefits, besides the costs savings and investment promotion
policies.
•
Cheaper workforce:
By 2018, the average salary in Mexico was US $4.45/hour, compared to China’s US $5.51/hour. Manufacturing costs remain competitive.
•
Cheaper logistic operations:
Mexico has 117 seaports, 64 international airports, 27,000 km of
railways and 172,000 km of highways for transportation and logistics.
•
Fast and safe supply chains:
The land transportation from
Mexico to the US takes about 3 or 4 days and reduces the risk in the supply
chains.

Source: Freightos, Prince Manufacturing.
•
Direct communications:
A time difference of 3 hours makes communications and supervision
easier.
•
Qualified workforce
The country has more than 110,000 new engineers each year, a fact
that guarantees the flow of specialized
human talent.

Surce:OCDE
•
Developed and diversified industrial
operations
Mexico is a global leader in manufacturing industries,
such as automotive industry (4th global exporter globally), aerospace (6th
largest supplier in aeronautical components for the US) and medical devices
(8th largest exporter globally).
•
Intellectual property protection
policies
Mexico has equivalent intellectual property laws as of the US.
•
Lower taxes and production
incentives
Mexico offers incentives to producers through promotion programs, which allows manufacturers to import raw materials and components without the payment of an income tax or compensation amounts
Before
considering nearshoring to Mexico, each company must look for professional advice in the real estate
market in order to identify the best opportunities in industrial buildings
or landscapes. They also must get
information about qualified workforce and providers.
Frontier
Industrial has available industrial landscapes inside
industrial parks, which are located in the main logistic and manufacturing
operations areas of the country. We also develop Build to Suit projects.