by
Sergio Tagliapietra
Nearshoring to Mexico has steadily increased in popularity over the years as a long-term strategy for U.S. and other foreign manufacturers. The low cost of labor, tax advantages through the country’s IMMEX maquiladora program, and historically solid infrastructure have provided production opportunities that have kept foreign direct investment growth at approximately $30 billion year after year.
For those considering nearshoring to Mexico for the first time, there are several benefits to exploring the option. Each supports manufacturers with regard to cost and time savings, allowing them to ramp up production and keep up with the market’s growing demand. Here are three of the strategic considerations enticing foreign operators to set up operations in Mexico.
Mexico’s Shelter Option
Mexico’s shelter model offers a unique advantage to foreign operators. A shelter is an all-ends service that provides fiscal benefits and a safe and quick startup with minimum legal exposure.
Typical production startup time is three to four months with all administrative responsibilities handled, including taxes and accounting, HR and recruiting, and legal and customs compliance.
This frees up time and resources for manufacturers to focus solely on day-to-day production while maintaining full ownership of processes and inventory as well as intellectual property rights.
Proximity to the North American Market
Another strategic advantage is the close proximity between the U.S. and Mexico. It supports expedited shipping and other logistical benefits to quickly reach the North American market, benefits that are unavailable when outsourcing overseas.
Most foreign manufacturers set up along the U.S./Mexico border which is a convenient transportation area with a well-established supply chain, often allowing for same-day shipments to arrive in the U.S. Additionally, because of the popularity of nearshoring to Mexico over the past several decades, there are designated areas and buildings primed for production and a technical labor force in place and ready for hire.
Industrially-skilled, low-cost labor
Hiring for manufacturing jobs in the U.S. and China has been at a standstill as Baby Boomers retire and younger generations seek out job roles in other industries. Whereas in Mexico, the industrial labor force holds steady across the spectrum of roles necessary for production. With the help of a shelter, the recruiting process typically happens within a month, depending on the project size and skills needed.
Though the majority of manufacturers choose the convenience and cost savings the shelter option provides, there’s also the option of setting up as a standalone entity. Since the services are the same, the standalone option can be a good choice for those planning well in advance and don’t require the quick, three- to four-month timeline a shelter offers. Every project has different specifications to consider. Working with a shelter operator helps manufacturers determine the most optimal route to achieve their production goals.
Nearshore vs. reshore
In its 2021 annual reshoring index, business consultant A.T. Kearney noted that because of manufacturers’ dependence on overseas suppliers for materials, parts and components, U.S. companies that plan to reshore face challenges associated with long global supply chains.
“But what if that ecosystem of suppliers that China and other Asian countries have been building for the past three decades were to move closer to the U.S.?” posed Patrick Van den Bossche, partner and lead author of the report, in a statement. “That’s exactly what we’re starting to see happening in this year’s edition of the Kearney Reshoring Index because, for a variety of reasons, more and more Chinese and Asian companies are setting up manufacturing operations in Mexico.”
These overseas suppliers are building or acquiring locations closer to the U.S. to then ship their manufactured components and parts for final assembly in the United States, Kearney noted. This shift will allow companies to claim the products were domestically produced, thus redefining reshoring in ways that reflect the evolving realities of new global supply chains by incorporating certain nearshored activities.
