Nearshoring, a great opportunity for Mexico?

  • More and more companies are considering nearshoring and Mexico, by sharing a border with the United States, having a trade agreement such as the USMCA, and a skilled labor force, is one of the countries that is taking the best advantage of this juncture.

  • With the arrival of the COVID-19 pandemic, many exporting companies that depended on Chinese production were affected by the interruption of the supply chain, a situation that increased interest in the nearshoring concept, which consists of transferring certain parts of their production processes to third countries in order to reduce costs, mainly labor costs.

    For decades, the preferred destination for nearshoring has been Southeast Asia, especially China and India; however, investments have found Mexico to be a strategic ally thanks to its labor conditions, skilled labor, reduced logistics times, and low transportation costs.

    Mr. Sergio Mireles, CEO of Datoz, comments that the nearshoring trend in Mexico was already expected and irreversible since a decade ago due to the fact that North American companies began to perceive risks associated with their intellectual property, increase in salaries, long transportation times and increased difficulties with supply chains. "However, this trend began to accelerate because of the escalating trade war between China and the United States during the Donald Trump administration. Finally, the trend was exacerbated by the difficulties that arose in supply chains and the solidification of confidence in the trade relationship with Mexico, derived from the successful negotiation of the new trade agreement."

    He emphasizes that the fact that Mexico is the largest trading partner of the United States makes it an attractive destination for nearshoring. "To become a major trading partner, Mexico had to develop infrastructure, supply, labor, among many other favorable conditions that together offer the right conditions that now allow us to take advantage of the nearshoring trend."

    According to Mr. Mireles, everything indicates that one of the main motivations and objectives of manufacturing companies is to reduce their dependence on China, which is another factor that favors Mexico. However, he indicates that China will continue to play an important role in the manufacturing and supply of inputs due to its geographic, population and economic magnitude.

    Factors favoring nearshoring in Mexico

    The CEO of Datoz outlines a number of factors that favor nearshoring in Mexico.

    Geographic proximity. It is not difficult to imagine the benefits in logistics, communication, transactional speed, among other elements that Mexico's proximity to the United States offers. In addition, the similarity in cultures and, practically, the null difference in schedules add additional value for the ease of doing business between these nations.

    Trade agreement. The ratification of the trade agreement between Mexico, the United States and Canada (USMCA) offers companies the confidence and structure required to work with certainty in their investments. Additionally, the conditions provided by these rules incentivize manufacturing and assembly projects in Mexico.

    Skilled labor.Wages are competitive, however, what is most important is the quality, abundance, and constant growth in educational programs to increase skilled and specialized labor. That is, labor with experience and technical capacity to perform highly specialized work.

    Supply chain.Adds to the factors that make Mexico attractive for nearshoring. The proximity to the United States facilitates logistics and makes it more flexible. At the same time, the country has an extensive and diverse supplier base that ensures a fluid and competitive chain.

    Industrial inventory for nearshoring

    Several real estate markets have the conditions and inventory necessary to meet the needs that will arise from nearshoring in Mexico.

    The main nearshoring markets in Mexico include the border area with the United States, as well as Bajío, Mexico City, Guadalajara and Monterrey. In these regions, some markets stand out for the size of their built inventory, the amount of land available with the necessary infrastructure to serve manufacturing projects, and the participation of investors with extensive experience in industrial real estate development. This list includes markets such as Tijuana, Ciudad Juárez, Mexicali, and Reynosa, on the border; Saltillo and Chihuahua in the north; Querétaro, Guanajuato, San Luis Potosí, and Aguascalientes in the Bajío and, finally, Puebla in the central zone, reports Mr. Sergio Mireles.

    He adds that in 2020 and 2021 the greatest impact of nearshoring was in Monterrey, Ciudad Juárez, Guadalajara and Tijuana. "We believe that the impact will increase in the markets located in Querétaro, Guanajuato, Saltillo, Reynosa and Mexicali.”

    The CEO points out that the experience, financial strength, and competitiveness offered by investors, owners and developers of industrial real estate in Mexico is key, in addition to the structure of service companies, construction, materials, and other areas of expertise that complete this sector and solidify the confidence that the country offers to manufacturing, assembly, and logistics companies.

    "Nearshoring favors the growing occupation of industrial spaces and the expansion of existing operations, creates competitiveness, encourages the creation of clusters in different areas of the country, as well as the expansion of the supply chain,” says the CEO of Datoz.

    The United States, China, Italy, Japan, Germany, Thailand, France, and Holland are the countries that have shown interest in nearshoring in Mexico.