Nearshoring to Mexico: A Strategic Opportunity for Smart Manufacturing

Written by Isha Rathor

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October 7, 2024

In recent years, nearshoring in Mexico has emerged as a strategic move for businesses looking to optimise their manufacturing operations. Mexico, with its proximity to the U.S., cost advantages, and growing industrial capacity, has become a top destination for foreign investment and nearshoring in sectors like automotive, electronics, and manufacturing. Let’s explore why nearshoring to Mexico is a game-changer and how it can benefit your business.

What is Nearshoring?

In simple terms, nearshoring is the practice of moving your business operations or manufacturing closer to your home country. Unlike offshoring, which often involves moving processes to far-flung places like Asia, nearshoring relocates them to nearby countries with similar time zones and cultural understanding. This proximity reduces delays, makes communication easier, and cuts down on logistical and transport costs

But why Mexico? What makes it stand out as a nearshoring destination?

Reasoning

1. Proximity and Time Zones

Have you ever tried managing teams in a completely different time zone? It’s not easy. Time zone differences can lead to miscommunication, project delays, and team fatigue. That’s where Mexico steps in as an ideal nearshoring partner. Most of Mexico shares the same time zone with the U.S., making real-time collaboration seamless.
The countrys’proximity also means shorter, cheaper flights for in-person visits. If you need to meet with your manufacturing team or inspect facilities, it’s just a few hours away. No more sleepless nights coordinating across the globe!

2. Cost-Effective Labour:

Despite wage growth in Mexico, the country still offers significantly lower labour costs than both the U.S. and China. As of 2022, Mexican wages stood at $4.82/hour, making it a more cost-efficient option for labour-intensive industries.

3. Strong Trade Relationships

What about trade? Mexico has longstanding trade agreements with the U.S. and Canada, most notably through the USMCA (United States-Mexico-Canada Agreement). This agreement ensures favourable tariffs, streamlined regulations, and reduced trade barriers, making it easier for businesses to operate across borders. A clear testament to the strength of this trade relationship is U.S. import ratio from Mexico, which is higher than almost any other country.

Benefits of Nearshoring to Mexico

Now that we’ve covered the basics, let’s explore the additional business benefits of nearshoring to Mexico.

1. Shorter Supply Chains, Less Risk

In recent years, global supply chain disruptions have faced unprecedented disruptions. Remember the chaos during the COVID-19 pandemic? Shipping delays, material shortages, and rising costs wreaked havoc on industries worldwide. Nearshoring to Mexico can alleviate many of these issues by bringing your supply chain closer to home.

With shorter shipping routes, you reduce the risk of delays and can respond more quickly to market demands. Imagine being able to source components or deliver products to the U.S. in days, not weeks

2. Skilled Labour and Growing Talent Pool

Mexico boasts a large, skilled workforce across multiple industries. Over 60,000 engineering graduates enter the workforce annually. The country has prioritised the digital and technical education of it’s young adult population.

Mexico’s rising IT sector is also a hotbed for nearshoring, offering skilled software developers at competitive rates. This makes it an excellent place to source skilled labour at a fraction of the cost you’d pay in the U.S. or Europe.

Source: ivemsa.com

3. Cost Savings

Nearshoring allows companies to tap into cost savings beyond just labour. Transporting goods from Mexico is less expensive than from Asia, both in terms of shipping fees and time. Additionally, reduced tariffs under USMCA further enhance the cost-effectiveness of nearshoring. These factors together allow businesses to save upwards of 20% to 30% on operational costs compared to offshoring to Asia (NextDoor Solutions).

Furthermore, companies can benefit from Mexico’s well-established manufacturing infrastructure, including the maquiladora program, which allows for duty-free imports of raw materials and components for manufacturing.

4. Cultural and Linguistic Compatibility

Another major advantage of nearshoring to Mexico is the cultural alignment with North America. Many Mexicans are fluent in English, and the cultural similarities between Mexico and the U.S. reduce the chances of miscommunication. This cultural proximity enhances team collaboration and reduces the risks associated with working in vastly different environments.

What’s going on in the Industry?

Nearshoring to Mexico has already made waves in several key industries:

Automotive

Mexico has long been a major player in the automotive industry, and it’s only growing stronger. Companies like General Motors, Ford, and Tesla have all expanded their operations in Mexico to take advantage of the lower costs and proximity to U.S. markets Mexico’s automotive sector benefits from the USMCA, allowing for smooth trade and reduced tariffs, which keeps costs down and production moving quickly.

Electronics

Mexico is also a major hub for electronics manufacturing. Due to the maquiladora program, companies can import components, assemble them in Mexico, and then re-export finished products with minimal tariffs. Electronics giants like Honeywell and Panasonic have taken advantage of this system to establish efficient supply chains between Mexico and the U.S.

Medical Devices

The medical device industry has also embraced nearshoring to Mexico, with companies like Medtronic establishing large-scale operations. Major manufacturing hubs for medical devices are located in Baja California, Tijuana, and Nuevo León. In fact, Tijuana alone hosts over 70 medical device manufacturers, including multinational giants like Medtronic, Johnson & Johnson, and Thermo Fisher Scientific (TeamStation). These regions offer easy access to U.S. markets, making Mexico an ideal location for medical device companies looking to nearshore their production.

Statistical Insights

Trade Volume: In 2022, the U.S. imported $382.1 billion worth of goods from Mexico, showcasing the strength of cross-border trade. This trend is expected to rise as more companies embrace nearshoring strategies. (Source: Savills)
FDI in Manufacturing: Foreign Direct Investment (FDI) in Mexico’s manufacturing sector continues to grow, driven by nearshoring trends. In 2021 alone, Mexico received $31.6 billion in FDI, with significant contributions from companies relocating their operations from Asia. (Source: Deloitte)
Industrial Real Estate Demand: According to Savills, industrial real estate in Mexico is expanding rapidly due to nearshoring. In 2022 alone, more than 19.7 million square feet of industrial space was developed to accommodate the growing demand. Additionally, many industrial parks in Mexico report near-zero vacancy rates, indicating strong demand driven by nearshoring activities.

Is Nearshoring to Mexico Right for You?

Nearshoring to Mexico offers strategic benefits, including proximity to key markets like the US, robust infrastructure, and cost-effective labour. Intretech’s expansion into Monterrey highlights Mexico’s industrial growth, supporting innovative manufacturing solutions and contributing to economic development.

The facility’s ability to streamline operations, reduce supply chain risks, and meet rising demand for smart manufacturing makes it an ideal nearshoring destination for businesses seeking efficiency, competitive costs, and a foothold in North American markets.