Uncovering Mexico’s Nearshore Advantages

For a number of factors, nearshoring has been rapidly growing in Mexico during the past ten years. First, the Covid-19 pandemic’s effect on the global economy showed how dangerous it was to rely so heavily on a fraying supply chain. And secondly, because of the provisions specified in the USMCA (United States Mexico Canada Agreement), which went into force on July 1st, 2020, more North American manufacturers are regionalizing their plans. When compared to offshoring, which involves moving factories to less expensive locations to produce goods or services, nearshoring enables operations. 

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Proximity to the United States: Mexico and the United States share a land border and the same time zone. This makes it possible for businesses to coordinate operations with both regions and enhance production and logistics chains through quicker and more flexible communication. Moreover, tariffs can be decreased because of the free trade agreements between Mexico, the United States, and Canada. It is not only a favorable commercial circumstance, but it also lessens outsourcing incentives, offers robust labor protections, and enhances interactions between these nations.

Shorter supply chain: Another effect was the pandemic. Supply chains were broken during this crisis. As the result, the price of sea transportation and the time it took to acquire goods from China increased. Due to the decreased reliance on the maritime sector because of delays in its routes, a country like Mexico was sought out where businesses do not have to worry about border or travel restrictions. A closer geographic location ensures that goods reach considerably more quickly.

Low labor costs: In Mexico, the cost of labor is significantly cheaper than in the United States. When comparing output between the two nations, Mexico’s manufacturing hourly wages are less expensive than China’s. Additionally, businesses can better plan their production costs in Mexico because of the country’s much more stable wages. As of 2019, Mexico’s fully burdened direct laborer wage rate is approximately $3.95 per hour, while China’s is $4.50.

Since starting to produce cars in Mexico in 1964, Volkswagen has extended operations to include factories in Puebla and Silao. The business has made significant investments in its Mexican operations in recent years. This includes a $1 billion investment in the construction of a new assembly factory in the state of Guanajuato in 2018. The company’s choice to nearshore to Mexico was influenced by a number of reasons, including the country’s highly skilled workforce, welcoming business environment, and free trade agreements.

Similar to that, GM has had a long history in Mexico, founding its first factory there in 1935. The company currently has a number of production sites in Mexico, including assembly plants in Silao, Ramos Arizpe, and San Luis Potosi. GM has manufacturing and R&D facilities in Mexico in addition to manufacturing. The business claims that through nearshoring to Mexico, it will have access to a highly skilled workforce, a good business climate, and quick access to important markets in North and South America.

Volkswagen in Puebla 

Tesla will add to the output of its current plants by constructing a Gigafactory in Mexico. The location will be close to Monterrey, according to Elon Musk’s announcement. As a result, up to 6,000 jobs are anticipated to be created by the manufacturing, with an estimated investment of $5 billion USD. This move comes as Tesla joins the eight existing electric car plants in Mexico, which also house major automakers like General Motors and Ford. Mexico has long been a significant producer and exporter of automobiles. Without including the vehicles that Tesla will produce, estimates indicate that Mexico’s production of electric vehicles will reach 40,000 units by 2025.

Tesla’s Gigafactory plan near Monterrey.

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Mexico City: Mexico City is a well-liked location for nearshoring because of its access to a sizable domestic market. Futhermore, it’s big pool of skilled labor, and efficient transportation system are benefits of Mexico City. The city is a great place for businesses providing software and IT services because it also boasts a booming IT industry.

Monterrey: The industrial center of Mexico is regarded to be Monterrey, which is situated in the north of the country. The city boasts a highly skilled labor force, an excellent network of manufacturing and suppliers, and a good transit system. Companies in the automotive, aerospace, and electronics sectors are particularly drawn to Monterrey.

Guadalajara: Located in western Mexico, Guadalajara is home to numerous universities and research institutes. This makes Guadalajara a prime site for businesses in the software and tech sectors. The city is a well-liked location for nearshoring because to its advanced transportation infrastructure and expanding supply of trained personnel.

In conclusion, due to Mexico’s closeness to the United States, enticing economic climate, and highly qualified workforce, nearshoring has grown in popularity among corporations. Shorter supply chains, cheaper labor costs, and access to free trade agreements are all advantages of nearshoring in Mexico. Companies like Volkswagen and GM have successfully nearshored in Mexico. In addition, Tesla’s ambitions to build a Gigafactory there underscore the country’s potential as a prime nearshoring location. Due to their skilled labor force, effective transportation networks, and thriving sectors for software, IT, automotive, aerospace, and electronics, Mexico City, Monterrey, and Guadalajara are among the top cities in the country for nearshoring.

Are you interested in nearshoring in Mexico? Contact us for a free call.