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The United States-Mexico-Canada Agreement (USMCA) replaced NAFTA in the summer of 2020, ushering in new opportunities for US manufacturers to outsource manufacturing operations to Mexico. Mexico’s strategic position within this agreement unlocks several key benefits for US companies seeking to expand production south of the border. 

And the advantages of USMCA are much like those afforded by the former NAFTA. But by some estimates, this new agreement is a marked improvement. Below are just some of the advantages of USMCA, specifically for US manufacturers doing business south of the border. 

1. Streamlined Trade and Market Access

Mexico serves as a vital link in the USMCA, providing US manufacturers with streamlined access to North American markets. By producing goods in Mexico, companies can leverage duty-free exports to the US and Canada, reducing trade barriers and enhancing market competitiveness. Mexico occupies a strategic location for US manufacturers, and this allows them to tap into a vast consumer base while also taking advantage of efficient supply chain logistics under the trade agreement. 

While certain duties and tariffs may persist under the USMCA, the agreement outlines a phased reduction of tariffs on various goods traded among member countries. This tariff elimination benefits US manufacturers in Mexico by reducing production costs and improving market access within North America. By capitalizing on duty-free treatment, US companies can remain competitive in the global marketplace and expand their market share in key sectors such as automotive, aerospace, and electronics.

2. More Favorable Rules of Origin

The rules of origin under the USMCA have improved and help US businesses unlock trade benefits while operating in Mexico. So long as goods produced in Mexico meet specific criteria for origin and content, they usually qualify for duty-free treatment when exported back to the US. And of course, greatly facilitates cross-border commerce and supply chain integration. This encourages US manufacturers to source materials and components locally, stimulating regional economic growth and bolstering North American supply chains.

3. More Resilient Supply Chains

Mexico’s participation in the USMCA strengthens North American supply chains by encouraging the use of regional content in manufactured goods. Global supply chains are too risky and crisis-prone. US manufacturers in Mexico benefit from sourcing materials and components within the region, enhancing efficiency and promoting economic integration. 

This collaborative approach enhances strategic partnerships among US, Mexican, and Canadian businesses, driving innovation and competitiveness across industries.

4. Fairer Trade Practices

Mexico aims to counteract unfair trade practices. The regulations under USMCA promotes a more level playing field and protects US manufacturers from potential trade disputes. The agreement also enhances market transparency and creates a fair and open space for businesses operating within the region.

5. Elevated Labor Standards

Under the USMCA, Mexico is committed to improving labor standard. This in turn benefits US manufacturers by promoting fair treatment and better working conditions. As a result, workforce productivity is boosted while setting up a positive business environment for foreign investors. 

It just makes sense. When US manufacturers invest in human capital and talent development within the USMCA framework, they can better cultivate a skilled workforce and drive sustainable growth. Mexico offers access to a deep pool of skilled labor coupled with common-sense labor regulations that promote a better workplace experience and productivity. 

6. Enhanced Intellectual Property Protections

One of the most overlooked advantages of USMCA is that US manufacturers operating in Mexico benefit from strengthened intellectual property protection. Enhanced safeguards for patents, trademarks, and trade secrets protect businesses’ innovative technologies and proprietary assets. 

Without this intellectual property framework, American businesses wouldn’t be able to focus as much on innovation and creativity. But because of this framework of IP protections, US manufacturers can more easily safeguard their investments and capitalize on emerging market opportunities.

7. Increased Digital Trade

E-commerce is big. And one of the unique advantages of USMCA provisions is the promotion of digital trade between member countries. This allows US manufacturers in Mexico to leverage e-commerce and digital services in cutting edge ways to affect the bottom line. 

Cross-border data flows enable companies to reach new customers and expand market opportunities within North America. By embracing digital transformation, US manufacturers can enhance customer engagement, optimize supply chain operations, and unlock new revenue streams in the evolving digital economy.

Leveraging Advantages of USMCA While Navigating Regulations

It goes without saying that the USMCA agreement is a massive regulatory framework, and compliance should be a priority. However, the clear and expansive advantages of USMCA vastly outweigh the efforts required to fully understand and implement its rules. 

Indeed, understanding and navigating the USMCA’s regulations is essential for US manufacturers looking to capitalize on Mexico’s role within the agreement. While some duties and tariffs may still apply in specific, limited scenarios, the overall benefits of duty-free trade and regulatory alignment offer significant advantages for businesses. Mexico’s adherence to USMCA provisions ensures a predictable and favorable trade environment. And this allows US manufacturers to plan and operate with confidence in the Mexican market.

To fully unlock the advantages of USMCA, US manufacturers should invest the time to understand the regulations, compliance, and supply chain integration thoroughly. Mexico’s strategic position within the agreement allows businesses to optimize operations and capitalize on the benefits of duty-free trade and market access. Of course, this requires strategic planning, collaboration with local partners, and continuous adaptation to evolving trade dynamics within the North American region. 

But Mexico’s role within the USMCA offers strategic advantages for US manufacturers seeking to expand operations and access North American markets. This redo of the NAFTA agreement puts Mexico in a unique position to help US companies unlock duty-free trade, streamlined regulations, and enhanced market access. 

North America is now a dynamic regional economy. Regionalism under the USMCA agreement presents a wealth of advantages over the globalism of the past. And by embracing regulatory compliance and supply chain integration, US manufacturers can thrive in the evolving landscape of North American trade and commerce. With Mexico serving as a strategic partner in the USMCA, US manufacturers have a unique opportunity to expand their footprint, drive innovation, and capture market share in one of the world’s largest trading blocs.

As this decade continues to unfold, instability and volatility seem to be here to stay. Companies who have bet on Asian outsourcing as well as companies still considering their options are asking the question, What about nearshoring? What about Mexico? 

And it’s a question worth asking. Just what are the reasons to nearshore? Do these considerations outweigh the calculus behind offshoring to China? 

Of course, each company is different. Every situation is not the same. And nearshoring may not be right for everyone. But there are certainly strategic reasons that nearshoring to North America in general, and to Mexico in particular, makes so much sense.

In many cases, for a lot of manufacturers, manufacturing in Asia just doesn’t provide the same advantages as it once did. These leaders and forward thinkers are discovering a far more attractive way to outsource manufacturing operations by leveraging Mexico. And below are just a few of these reasons to nearshore.

1. A More Resilient Supply Chain

In the past few years, the economic world has been in flux. Severe supply chain crises rocked the global marketplace, leaving companies in the lurch. Product scarcity and unavailability reduced market share and soured consumer perception of some brands. 

As such, the past few years has seen a renewed interest in nearshoring to Mexico to ensure supply chain resiliency. Rather than sourcing parts and products from across the globe, these parts are now available just south of the border, mere days from US consumers.

Nearshoring enhances a company’s ability to weather disruptions. It helps them succeed and thrive in an ever-changing business landscape. Manufacturing in Mexico makes this inherent flexibility and resiliency accessible to US-based companies. By leveraging Mexico’s proximity, infrastructure, and competitive advantages, manufacturers are positioned for enhanced efficiency, reduced risk, and more long-term success.

2. Better Flexibility

Hand in hand with this is the enhanced flexibility achieved by this proximity. When time to market matters more now than ever, and changing demand requires greater flexibility, nearshoring in Mexico stands out as an attractive option. 

Customer demands change rapidly in today’s market, especially in recent years, when situations can change dramatically in very little time. Manufacturers must have the ability to respond to these market changes rapidly without major disruption.

3. Proximity Affords Ease of Management and Faster Shipments.

If you’re going to outsource manufacturing, it’s not easy to manage operations on the other side of the planet. The benefit of managing operations in the same time zone or close to it simplifies things greatly. And if an on-site trip is required, driving is an option, or a flight to the factory and back can be a mere day trip.

Likewise, shipping times are reduced dramatically. Factories can store less inventory and maximize production space. Scale becomes more predictable. In fact, border areas like Baja California host major manufacturing clusters in many major industries and are a mere border crossing away from US distribution.

4. China Is Fading from the Top,

Another of the primary strategic reasons to nearshore is that China is no longer the manufacturing powerhouse it once was. Yes, it built entire supply chains and supplier networks in the region, but its population is now aging, wages are rising at an alarming rate, IP protections are problematic to put it mildly, and years of draconian regulations have cast a lasting pall over long-term economic prospects. 

China is on the decline. The future of manufacturing is Mexico. And as the shift is made to return to North America, even Chinese companies want to invest in Mexico. Even they see the writing on the wall and are making the switch to Mexico. 

5. A Tariff Advantage

Basing manufacturing operations in an offshore location in southeast Asia exposes the parent company to import/export liabilities and expensive tariffs. This is especially true of China, which has been embroiled in a trade struggle with the US for years. 

But when dealing with a neighboring country like Mexico, tariffs are usually minimal. The USMCA agreement greatly benefits US manufacturers operating in Mexico. In fact, Mexico and the US trade inputs and finished products back and forth across the border almost entirely duty free for most products.

6. Globalization Is the Old Way.

In the 90s, globalization was the way of the future. Major trade barriers were removed, and international cooperation reached a zenith. It was the smart and informed thing to do to remove margins and flexibility in exchange for increased profitability. In short, the world was a safe place to manufacture, and companies capitalized on this secure climate. 

But this does not reflect the modern order. Today’s markets are anything but secure and consistent. As such, leading companies are rethinking globalization. Among the main reasons to nearshore is the reduced benefit of a global supply chain, vulnerable and unforgiving. No longer is efficiency the buzzword, but resiliency, flexibility, and time to market. 

7. The Unique Benefits of Mexico

Not only is the way we think of international manufacturing changing, but Mexico is also emerging as a major player on the world scene. Mexico offers incredible advantages for nearshorers. From their strong IP protections to their stable and low cost of labor to their cultural similarities, manufacturing in Mexico is much simpler and profitable than the alternatives. 

And there are different modes of entry, as well. For smaller companies with unpredictable volume and low profit margins, there are contract manufacturers. For large companies with the capital to buy a wholly owned subsidiary, Mexico affords a low-cost manufacturing advantage over competitors. And for everyone in the middle, there is maquiladora manufacturing through a shelter service. This option allows maximum management benefit without all the hassle, and opens up the cost advantage without the liability. 

So, if you’re trying to understand why so many companies in the US are making the switch, these varying reasons to nearshore show the rationale behind the shift. The world has fundamentally changed in the past decade. And those companies that recognize this and act now can stay ahead of the curve and enjoy considerable advantages over the competition.

When it comes to shipping product cross-country, trucking is king. The US and every developed nation in the world rely on an extensive network of 18-wheelers manned by a brotherhood of truck drivers to bring the goods to market. These tireless workers put in long hours to safely navigate interstates and highways, and are typically paid by the mile. We rely on them to deliver everything from bananas to boat parts, medical devices to automotive components, furniture to flame throwers.

But could that all be changing? With the rise of AI, robotics, and the computer age, driverless trucking has become a very real prospect for the near future. Truck drivers may soon go the way of the dinosaur. It’s conceivable that these self-driving machines might soon be transporting many tons of cargo down the highway with no one behind the wheel.

Skeptics say this prospect sounds terrifying, that machines don’t have the reflexes of human beings, that it will cost too many jobs, that the technology is just too expensive. But proponents are already rolling out the technology. And now the question really becomes more about scaling. It’s no longer a matter of if but when driverless trucking will become a reality.

Self-Driving Trucks Currently

Whether your company is engaged in local trucking in a given metro area or cross-country long hauls or cross-border trucking between countries, the prospect of self-driving trucks probably piques your interest. And if you believe some of the marketing, you may think it’s already taking over. But that’s not quite what the current picture shows.

Yes, self-driving trucks are already on the road in some places. In early 2022, Kodiak Robotics teamed up with U.S. Xpress to put a self-driving truck on a route between Dallas and Atlanta. The truck drove four round trips, delivering eight loads of freight, and traversing 6,300 miles. And it completed these trips in just five days. A truck driver would have needed at least 10.

But we’re not talking about driverless trucking just yet. Yes, these were self-driving. But they had humans in the seat at the wheel. Currently, the industry is not quite ready to turn these machines loose without “safety drivers” to step in if needed. And records show, this and other test runs have required quite a lot of stepping in and manual overrides.

Unanswered Questions

While the hope is to cut down on delivery times and driver salaries, there are still numerous questions that need to be addressed. For example:

• How will driverless trucks navigate more complex city grids as opposed to simple interstate stretches?
• How would they handle roadside inspections and customs processing?
• How would a driverless truck address blowouts and similar problems?
• How can a driverless vehicle set up safety triangles and flares in a breakdown? 
• If driverless trucks go EV in the future, won’t their need to recharge slow them down much like having a driver that needs rest?

Major Players Propelling the Change

Still, there are a number of companies who believe they can answer these questions if given the time. They are already working to make driverless trucking part of the future. In February, the Consumer Electronics Show (CES 2024) hosted several of these game changers who made their pitch for a future in which we trust 35,000-pound 18-wheelers whizzing down the highway with no one at the wheel. 

This showcase of Automated Driving Systems (ADS) included many well-established players like Bosch, Mobileye, and Valeo. But it also showed how powerful and adept emerging industry leaders are becoming.

Gatik was the first company in the world to put driverless trucks on the road in 2021 with WalMart. They now offer autonomous trucking for customers in retail, manufacturing, grocery, and more. Their truck boasts full, built-in redundancy and an enhanced sensing suite. They plan to release “freight-only” services (meaning no driver onboard) by the end of this year.

Aurora Innovation is rapidly becoming a dominant force in the ADS field. They’re now partnering with Continental to allow for massive production at scale by 2027. Their system will include multiple redundancies and backups in the case of sensor or component failure, complete with a secondary computer totally isolated from the primary system should all else fail.

Kodiak Robotics isn’t partnering with an OEM or relying on one to build redundancy systems into the hardware. They’re taking this role on, themselves, with comprehensive fail-safes such as triple break actuators, dual-redundant steering, and two fully isolated electrical systems to power their ACE safety computer.

Daimler has also teamed up with Torc Robotics and plans to launch a fleet in 2027.

Pushback

With several companies set to launch driverless trucking fleets by the end of this year, there are calls to regulate and restrict this inevitable technology shift. The current federal stance on driverless trucking is that, if it’s not illegal, it’s legal. In other words, in all but the 10 or so states that have restricted it, driverless trucks are legal from a federal standpoint. 

Many states are silent on the matter, but other states like Florida and Texas have passed legislation to establish it as legal. But there are a few, like California and New York, that have placed limits like prohibiting vehicles over 10,000 pounds from being driverless. 

Currently, driverless vehicles display a profound ability for safety and complex detection and response. In fact, courtesy maneuvers are even built into the software to enable these trucks to “play nice” with other cars on the roads. Yet, there are safety concerns about such large vehicles traveling at high speeds unmanned.

And there is also concern for the loss of jobs that may accompany driverless trucking. Yet others point out that this new technology will also create new jobs. For example, while turnover is around 95% for truck drivers due to burnout from being away from home, etc. driverless vehicles may actually provide a more attractive alternative. Because navigating in cities is so much more complex, we may see truck drivers continue working within cities, picking up cargo from a drop-off site just outside of town. This would allow a more convenient work schedule and home life for drivers.

Additionally, it’s becoming clearer that any job displacement will take years. One study indicated the worst-case scenario would be about a 2% layoff rate over the next five years. And many of these drivers could get new jobs as dispatchers, maintenance technicians, and fuelers.

While driverless trucking isn’t quite here in the truest sense just yet, it does seem to be just around the corner. But that corner will take some time to round, and the future may present just as many pros as cons. There will likely be both jobs lost and jobs created, safety concerns and safety improvements. Regulation may play a role in the speed and scale of adoption, but whatever the route, it seems very likely that self-driving trucks will play a large role in the future of transportation.

While the global manufacturing world deals with market shifts and a potential looming recession, relocation continues to be a hot subject. Specifically, manufacturing executives are interested in nearshoring to Mexico for its cost efficiency, proximity to the US, and many other factors. And the prospect of utilizing a Mexican shelter service only adds to this appeal.

Businesses seeking efficiency and cost-effectiveness are increasingly turning to Mexico for nearshoring operations. And it’s no surprise. While Asia has surely been more popular in the past, Mexico’s advantages now make it a far more compelling alternative for US companies. And by leveraging a Mexican shelter service, these companies are finding they can simplify the transition, maximizing the benefits of operating in this dynamic market.

Choosing Mexico is Advantageous

The reasons manufacturers choose Mexico are clear and obvious. Mexico offers US businesses clear advantages, some of which include:

Proximity: Mexico’s geographical advantage provides numerous logistical advantages for businesses serving US markets. With swift transit times, streamlined supply chains, and efficient communication, companies can maintain lean inventories and enhance supply chain resilience, all with better oversight, minimized risk, and closer supply chain management.

FTAs: Mexico’s participation in various free trade agreements, such as the USMCA, grants seamless access to global markets, reducing or eliminating tariffs. 

Low-Cost Labor: Mexico boasts a deep pool of skilled labor at competitive rates. Unlike the US, where labor costs are rising rapidly, Mexico offers a stable labor market with affordable skilled workers, allowing US businesses to trim operational costs without compromising on quality.

IP Protections: Mexico stands as a robust ally for US companies in the realm of intellectual property (IP) protections. With a legal framework aligned with international standards and a strong ranking for IP protections, Mexico offers a secure environment for safeguarding innovation. 

IMMEX: Mexico’s IMMEX program allows foreign companies to operate maquiladoras or factories with reduced or eliminated duties and tariffs. Under this trade program, US businesses can enhance their operational efficiency and competitiveness in the global market, especially when coupling this with a shelter service.

Key Factors to Consider Before Relocating

While relocating manufacturing operations to Mexico offers numerous advantages, it’s crucial for US manufacturers to tread cautiously and consider several factors before making the move.

• Labor Costs: Lower wages in Mexico may attract US manufacturers, but it’s essential to account for additional expenses like benefits, training, and turnover rates.
• Infrastructure: While Mexico boasts modern infrastructure in some areas, it’s important to assess the location’s infrastructure, including energy grids and transportation networks.
• Supply Chain: Careful planning is necessary to avoid disruptions in the supply chain. Manufacturers should evaluate the impact on suppliers, customers, and transportation costs.
• Regulations and Taxes: Compliance with Mexican regulations and understanding tax implications are imperative to avoid fines and penalties.
• Security: Addressing concerns about crime and violence with robust security measures is crucial for the safety of employees and facilities.
• Language and Culture: Effective communication channels and cultural sensitivity training are essential to bridge language and cultural differences.
• Labor Laws: Comprehending and complying with Mexican labor laws is crucial to avoid legal issues.
• Training and Development: Providing adequate training and development programs ensures the workforce meets industry needs effectively.

How Shelter Manufacturing Works

So, just what is shelter manufacturing, and how exactly do shelter services work? Simply put, shelter manufacturing simplifies the process of initiating and managing manufacturing operations in Mexico, with service providers handling administrative and compliance tasks like securing permits, registering the foreign entity, and managing legal and labor compliance. 

By delegating these crucial aspects to experts, manufacturers can focus on core production activities, leading to quicker and more efficient operations. Shelter services operate as partners, offering control over project quality while eliminating the headaches of establishing a foreign factory. Providers manage tasks such as company registration, permits, and human resources, allowing manufacturers to start production swiftly and hassle-free.

6 Benefits of Using a Mexican Shelter Service

Choosing a shelter service in Mexico offers a stress-free pathway to leverage the country’s advantages while minimizing risks. By streamlining startup processes, reducing tax exposure, leveraging established relationships, ensuring operational efficiency, and enhancing security, businesses can maximize savings and competitiveness in the global market.

Here are just 6 important reasons your company might choose to use a Mexican shelter service when nearshoring to Mexico:

1. Fast Startup: Partnering with a shelter service ensures a rapid startup process, cutting through red tape and bureaucratic hurdles. With logistics and paperwork handled by the shelter company, manufacturers can focus on product quality, getting a new factory up and running in a matter of weeks instead of months.
2. Reduced Tax Exposure: Shelter companies offer tax incentives and minimize overall tax exposure for manufacturers. By not being liable for Mexican income tax and enjoying duty-free imports of materials and equipment, businesses can maximize savings while ensuring compliance with regulatory requirements.
3. Established Relationships: Shelter companies have established relationships with local labor groups, ensuring fair wages and loyalty. They also have access to safe facilities and established supply chains, streamlining operations and reducing risks associated with vendor management.
4. Operational Efficiency: Shelter services specialize in managing maintenance and utilities, alleviating operational hassles for manufacturers. With expert management of these issues, businesses can maximize efficiency and savings without the burden of day-to-day operational tasks.
5. Enhanced Security: While Mexico is conducive to business, security concerns exist. Shelter services provide highly secured industrial parks and contract reputable security firms, ensuring the safety of personnel, shipments, and equipment.
6. Streamlined Regulatory Compliance: Partnering with a shelter service streamlines regulatory compliance in Mexico, providing expert guidance on customs procedures, labor laws, and ongoing support to ensure adherence to local regulations and mitigate compliance risks.

Getting Started

When you’re ready to experience the simplicity of using a Mexican shelter service for your company, it’s absolutely crucial to start right. Begin the process by selecting the right shelter manufacturer for your operation. Conduct thorough research to ensure you choose a provider with a proven track record of success and reliability. Once you’ve made your selection, then it’s time to define your production requirements, including volume, lead times, and quality standards, to align expectations with your manufacturer.

Effective communication is essential. Establish clear channels with your shelter provider from the outset to facilitate a smooth collaboration. Additionally, be mindful of cultural differences between Mexico and the United States. You may need to adapt your approach as needed to navigate the distinct business culture of Mexico. But as this new partnership grows, you will find the balance and learn to maximize the benefits of Mexico for your business.

Recently, Mexico’s automotive industry, long revered as a global powerhouse, has undergone a remarkable transformation. The Latin American country has evolved from a traditional internal combustion engine (ICE) manufacturing hub to a burgeoning center for electric vehicle (EV) production. In fact, EV manufacturing in Mexico is set to quickly become a major hub for both North and South American EV markets. 

Initially, there was some skepticism and challenges surrounding this transformation. Still, Mexico has successfully positioned itself as a key player in the rapidly expanding EV market. And in the process, they’ve attracted a significant level of investments and reshaped their industrial landscape.

From Doubt to Dominance

Not long ago, doubts loomed over Mexico’s ability to embrace the electric vehicle revolution. As late as November 2021, CEO Francisco Garza of GM Mexico cast uncertainty over the country’s automotive future, citing concerns about meeting zero emissions goals. However, after a sequence of strategic reforms and a shift in the global dynamics, Mexico has experienced a remarkable turnaround.

In February 2021, Mexico initiated sweeping electricity reforms, prioritizing state-run utilities and energy independence, despite initial industry apprehension. Initially, this move raised concerns about hindering green energy initiatives. But subsequent developments signaled a change in direction. Despite public skepticism from President Andrés Manuel López Obrador, Mexico’s automotive industry surged forward, fueled by a combination of economic imperatives and political recalibration.

EV: The Future of Automotive

Most carmakers tend to agree that electric cars will play a huge role in the future of the automotive industry. And today, Mexico stands as a beacon of EV manufacturing, attracting major players from around the globe. The landscape is marked by a flurry of activity, and established automakers and even emerging Chinese giants are eyeing Mexico as a strategic hub for EV production.

American automakers such as Ford and GM are not just investing in retooling existing facilities but are also constructing new manufacturing plants dedicated to EV production across Mexico. Ford is already assembling their electric Mustangs in the state of Mexico. And GM is actually expanding its footprint with a new factory in Coahuila. The automotive giant also plans to retrofit existing facilities for EV manufacturing in Mexico.

Meanwhile, Chinese EV manufacturers, recognizing Mexico’s potential as a gateway to the lucrative US market, are making significant strides. Leading Chinese companies like MG, BYD, and Chery, are in talks to establish EV factories in Mexico and leverage the country’s robust automotive ecosystem and favorable trade agreements.

Recognizing that EV manufacturing in Mexico is the future, country officials and industry leaders are collaborating to prepare for much higher demand. 

Mexico: An EV Manufacturing Powerhouse

The allure of Mexico for EV manufacturing isn’t just because of its geographical proximity to the US market. Mexico truly has a formidable automotive ecosystem already in place. And what’s more, Mexico enjoys modern infrastructure, integrated supply chains, and an extensive network of free trade agreements that combine to make it an ideal destination for EV production. The country boasts:

• Over 300 research and development centers
• 50+ automotive brands
• A skilled workforce over 1.7 million

Recent investments underscore Mexico’s growing prominence in the EV landscape. General Motors is injecting $1 billion into its Mexican operations, while Ford has redirected funds from its Ohio plant to bolster its Mexico facilities. International players like Bosch of Germany are reaffirming their commitment to Mexico with substantial investments, further solidifying its position as a global automotive hub.

In tandem with industry investments, Mexico’s EV manufacturing capabilities are poised for exponential growth. Projections indicate a sustained annual growth rate of 25% in EV and hybrid production, positioning Mexico to dominate Latin America’s EV output in the coming years.

Tesla, the renowned electric vehicle pioneer, is currently building a gigafactory, set to begin production in 2026 near Monterrey. The monumental investment, ranging from $5 to $10 billion USD, underscores Tesla’s commitment to expanding its global footprint and tapping into Mexico’s burgeoning EV market. With its state-of-the-art facilities and cutting-edge technology, the Tesla gigafactory is poised to revolutionize Mexico’s automotive landscape, further solidifying the country’s position as a powerhouse in the electric vehicle industry.

An Opportune Time

As leading EV manufacturers from around the world eye Mexico for expansion, the stage is set for a new chapter in Mexico’s automotive legacy. Thanks to its competitive labor costs, streamlined regulatory environment, and strategic location, Mexico is currently emerging as a major player in the global EV market. And now is the time when forward-thinking companies are laying the groundwork to capitalize on this market shift.

Not everyone is building wholly owned gigafactories or pouring billions of dollars into new factories there, though. In fact, many are exploiting this opportunity by establishing relationships and processes with contract manufacturers in Mexico. Others are finding they can take advantage of Mexico’s EV manufacturing capacity under the umbrella of a shelter service. 

Whatever path is right for each EV producer, they all agree that Mexico is the new frontier for automotive manufacturing. Mexico’s journey from skepticism to leadership in EV manufacturing epitomizes its resilience and adaptability in an ever-evolving industry. As the world accelerates towards an electrified future, Mexico stands ready to shape the automotive landscape for generations to come. 

Nearshoring has become more attractive than ever as a means of achieving resilience and maximizing profitability. And as many US companies shift their attention back to North America, manufacturing in a Mexican maquiladora makes more and more sense, checking all the right boxes. 

Relocating a supply chain can be a big step, but in light of the many advantages available right here in North America, most producers find the move to be right for them. And first-time outsourcers can set their companies up for huge success by starting out with a Mexican maquiladora operation. 

So, let’s dive in and see what sort of benefits your company can expect and what it takes to capitalize on them.

What Is a Maquiladora?

A maquiladora is a Mexican corporation operating under the IMMEX program that provides for duty-free or near duty-free, temporary imports of machinery, equipment, and materials. It is often called a twin plant because it manufactures in Mexico in tandem with a US company providing administrative functions from within the US. This allows US companies to outsource cost-intensive segments of their production process and under preferential tax arrangements to maximize efficiency.

There are approximately 5,000 maquiladoras currently in Mexico, employing approximately 2.5 million people and generating more than $200 billion in annual revenue. And these numbers are growing, especially as those manufacturing in a Mexican maquiladora exploit shelter services to further simplify the process.

Strategic Benefits

Nearshoring to Mexico via this option affords a litany of strategic advantages and benefits for North American companies. Below is a look at just a few of these reasons to manufacture in a Mexican maquiladora.

Product Flexibility 

Mexican factories manufacture just about anything. Manufacturing in Mexican maquiladoras means access to virtually any components, materials, and requirements needed to assemble and produce whatever the customer base demands.

Low-Cost Labor Access

In spite of the rising cost of labor in China, the US, and most places in the world, Mexico provides access to a relatively stable cost of labor. And this labor pool is highly skilled and trained for manufacturing tasks. In fact, Mexico’s industry-focused educational institutions produce thousands of technicians and engineers specifically for manufacturing jobs.

Duty Avoidance

Another benefit of maquiladora manufacturing in Mexico is that US companies receive special import/export tax treatment. In most scenarios, under the IMMEX Program, producers may eliminate their entire VAT liability in addition to general import/export taxes for goods that come and go on a temporary basis. If the goods and materials are imported for the sole purpose of manufacturing goods for export, then they are exempted from duties. So, US companies can take advantage of all the raw materials, technology, and inputs from both their home country and Mexico without any additional taxes. 

Global Free-Trade Access

One thing many do not realize about manufacturing in a Mexican maquiladora is that this gives them access to the most extensive free-trade network on the planet. Mexico’s FTA network provides preferential tariff access to over 50 countries and more than two thirds of the world’s population. 

Proximity Savings

In addition to avoiding customs and VAT taxes on imported inputs and exported goods, maquiladora manufacturing in Mexico offers other savings advantages related to close proximity to the US consumer market.  Integration in a highly specialized manufacturing cluster and industrial park along the US-Mexico border can streamline costs and maximize economies of scale in a massive way. Whatever shortages or market changes occur, changes in fuel costs, wars, etc., low-cost manufacturing mere hours from your target market affords incredible savings.

How to Get Started

Are you considering a Mexican maquiladora operation? Where do you start? First, it’s helpful to identify the specific route you want to take. There are several ways to leverage Mexican maquiladoras, including purchasing a wholly-owned subsidiary, contract manufacturing, or partnering with a shelter service for optimum protection and process control. 

If you decide to open a maquiladora of your own, be sure to compile all of the necessary papers and documentation for regulatory compliance. You’ll also want to familiarize yourself with the labor situation, workplace culture, and geography. Site selection is important to take advantage of Mexico’s state-of-the-art industrial parks and to ensure security and access. Managing a maquiladora can be quite daunting and complex, so consider partnering with a shelter service to take the hassle out and ensure success from the start. 

In 2021, the United States and other countries faced a severe supply chain crisis. After a global shutdown for several months, global production was down, yet demand was up. As a result, US companies faced a severe supply chain crisis that saw container ships backlogged outside the ports of Los Angeles and Long Beach in numbers well over 100 at a time. Most of these were forced to drift in deep water for weeks on end.

This and other events on the world scene have prompted many to seek out new ways to build resilient supply chains. Wars, epidemics, shortages, and natural disasters can happen without warning. And global disruptions should be viewed as the norm, not the exception. It’s not a matter of if they will happen, but when. 

And forward-thinking executives in manufacturing should prioritize building a resilient supply chain to stay ahead of the curve. One of the best ways to achieve this is through nearshoring. 

A World in Flux

Most analysts agree that, in the ever-evolving landscape of global commerce, the next five to ten years are poised to bring about profound changes across industries worldwide. The speed and nature of these transformations remain uncertain, as does their impact on global supply chains. The intricate dynamics of supply chains operating across multiple economic levels reveal various risks, stemming from interdependence among different components of the supply chain system.

Due to the various uncertainties and risks associated with global supply chains, the need for shorter and more efficient supply routes has become paramount. Indeed, the world is rethinking globalization. Achieving a resilient supply chain has become more prized than highly efficient but unforgiving processes.

And so, nearshoring, the relocation of production to neighboring countries like Mexico, offers significant benefits such as reduced transportation costs, shorter lead times, and participation in duty-free programs under agreements like USMCA. Many factors are driving companies to make the switch to Mexico, including geopolitical tensions, logistical challenges, and technological advancements. And these moves are not knee-jerk reactions, but carefully considered, data-driven decisions to choose resilience as a long-term profitable strategy. 

Why Nearshore to Mexico?

And just what is nearshoring? Nearshoring involves relocating part of the production process to a neighboring country, typically one with closer proximity to the target market. For US-based companies, Mexico has emerged as a prime destination for nearshoring, offering a range of benefits including reduced transportation costs, proximity to the largest consumer market, and participation in duty-free programs.

Another factor that makes Mexico a priority option is the ongoing trade tensions between the United States and China. This tariff war, coupled with geopolitical instability and disruptions caused by the 2020 health crisis, have prompted companies to reevaluate their global supply chain strategies. 

Simply put, nearshoring to Mexico presents an attractive alternative, offering lower transportation costs, reduced lead times, and a stable trade environment under the USMCA agreement. These are just some of the many benefits of nearshoring.

Key Aspects of Nearshoring Success

In order to leverage nearshoring to achieve a resilient supply chain, several critical components must be present. Any nearshoring location must have the following aspects to be a successful nearshoring partner.

1. Infrastructure:

Efficient infrastructure is crucial for successful nearshoring operations. Mexico boasts a well-developed network of roadways, seaports, airports, and trade-oriented Customs Offices, facilitating seamless commerce with the US. This robust infrastructure ensures certainty in lead times, minimizes delays in customs, and mitigates regulatory risks.

2. Technology Adoption:

The adoption of technology plays a pivotal role in enhancing productivity and resilience in supply chain operations. Global trade executives recognize the importance of technology in increasing agility, compliance, and visibility throughout the supply chain. Integration with stakeholders such as 3PLs and Custom Brokers further enhances efficiency and reduces risks.

3. Innovation and Change Management

Implementing a nearshoring strategy requires not only adopting technology but also embracing change management processes to minimize disruption to business operations. Specialized global trade management technology enables companies to streamline processes, ensure compliance, and gain real-time visibility into operations.

4. Lower Costs:

Nearshoring to Mexico offers significant cost savings and competitive advantages. Lower labor costs, favorable trade agreements, and efficient logistics infrastructure make Mexico an attractive destination for manufacturers. And the country’s strategic position and robust manufacturing sectors further enhance its competitiveness on the global stage.

Making the Switch

While nearshoring offers numerous benefits, it also presents logistical challenges such as transitioning costs, establishing new shipping lanes, and navigating regulatory requirements. However, the positive impact on working capital, reduced dependency on credit facilities, and enhanced financial health outweigh these challenges. And shelter services greatly enhance the transition for US producers. 

Data-driven viability assessments are essential for evaluating nearshoring options to ensure a resilient supply chain and long-term success. Factors such as freight costs, lead times, labor availability, and tariff stability must be carefully considered. Conducting a comprehensive “battle drill” simulation exercise might even enable companies to assess the feasibility and potential benefits of nearshoring.

In an era marked by geopolitical uncertainties and global crises, it’s no surprise that so many US companies are making the switch. Among a turbulent terrain of global supply chains, nearshoring emerges as a transformative catalyst for manufacturing resilience. It just makes sense to reduce reliance on remote sources and engineer agility into your manufacturing plan.

Nearshoring strengthens companies’ ability to weather disruptions and thrive in an ever-changing business landscape. And nearshoring to Mexico offers makes the most sense for companies seeking to achieve this. By leveraging Mexico’s proximity, infrastructure, and competitive advantages, companies can enhance efficiency, reduce risks, and position themselves for long-term success.

Located along the US-Mexico border on the Pacific coast, the San Ysidro Port of Entry is a vital gateway connecting San Diego and rapidly growing Tijuana. This bustling corridor facilitates a vast array of cross-border traffic. It was originally established in 1906, and in the past 120 years, this port has evolved into the world’s largest international border crossing, the fourth-busiest land crossing by people, and by far the most significant industrial corridor for Northa American trade. 

Every day, 24 hours a day, this border crossing is teeming with commercial, individual, and pedestrian traffic. Let’s take a look at this hugely significant crossing and discuss what you should know if you plan to cross the border here.

Gateway to Two Nations

At the heart of the San Diego-Tijuana metropolitan region, the San Ysidro Port of Entry serves as a crucial link between Mexican Federal Highway 1 and Interstate 5. Its strategic location attracts a staggering daily influx of 70,000 northbound vehicles and 20,000 pedestrians, making it a focal point for cross-border commerce and travel. It truly is the main gateway between the nations of Mexico and the United States.

The port boasts multiple gateways catering to various modes of transportation. With 34 lanes for northbound vehicles and bi-directional pedestrian crossings, including the recently enhanced PedWest facility, travelers enjoy improved efficiency and convenience. The southbound lanes of Interstate 5, now located west of their previous location through the El Chaparral Point of Entry, provide space for expanded administrative and border inspection facilities, facilitating a smoother flow of traffic.

In 2019, the most recent year for crossing statistics published, there were:

• Nearly 15 million vehicle crossings
• Well over 50 million people who crossed
• Nearly 11 million pedestrian crossings

The San Ysidro port of entry is one of three public ports on the US side of the 60-mile-long border with Baja California, along with Otay Mesa and Tecate. On the Mexican side, there is also the El Chaparrel Point of Entry. The San Ysidro and El Chaparral ports of entry jointly constitute the busiest land border crossing in the world. There are also eight international railroad crossings for freight shipments along this border.

Expansion for Future Growth

To meet the demands of increasing traffic, the San Ysidro Port of Entry underwent a significant expansion project. Costing approximately $625 million, this bi-national effort aimed to modernize and expand administrative and operational facilities, including the addition of 38 new vehicle inspection booths. The project’s completion in 2019 transformed the port into a model of sustainable design and technology, poised to accommodate projected growth for years to come.

The expanded port of entry now includes 34 northbound lanes with 62 inspection booths. Additionally, SENTRI efficiency has been increased, and a multimodal transit center was added.

Streamlined Crossings

Crossing the border from the United States to Mexico requires specific documentation. Mexican nationals must present valid identification such as passports or INE credentials, while foreigners need passports and may require additional permits or visas. Conversely, travelers heading northbound into the United States need appropriate documentation, including passports and visas where applicable.

For commercial travelers and cargo shipping, standard cross border trucking rules apply. As with any US-Mexico port of entry, certain papers should be in order, such as a bill of lading, commercial invoice, certificate of origin, etc.

Accessing the San Ysidro Port of Entry is straightforward, whether by vehicle or foot. Travelers driving from San Diego can easily reach the port via Interstate 5, while pedestrians can utilize the nearby trolley system. Once at the port, efficient processing ensures minimal wait times, facilitating smooth and hassle-free border crossings.

Exploring Border Crossing Options

While the San Ysidro Port of Entry serves as the primary gateway, travelers have alternative options for crossing between San Diego and Tijuana. The Otay Mesa border crossing offers a faster but less centrally located option. This is, of course, ideal for travelers with specific destinations in mind. Additionally, the CBX border crossing caters exclusively to travelers using the Tijuana International Airport, providing a swift and convenient passage for air travelers.

The San Ysidro port of entry truly stands as a testament to the enduring bonds between the United States and Mexico. The value of commerce between these two top trading partners exceeds $1 million USD per minute, and as such, ease of border crossing is essential. With its extensive facilities, strategic location, and ongoing expansion efforts, it continues to facilitate seamless cross-border travel and commerce, enriching the lives of millions who traverse its pathways each year.

By investing in state-of-the-art infrastructure and technology, both the United States and Mexico are committed to fostering continued economic growth and cultural exchange between their nations. As the gateway to two vibrant and interconnected communities, the San Ysidro Port of Entry remains an enduring symbol of cooperation and partnership in the border region.

A recent survey of Chinese factory managers reveals a continued contraction in Chinese manufacturing for the fourth consecutive month. This reflects a continuation of the trend China has experienced for years now, as manufacturing outsourcers look elsewhere and the Asian giant falters as the world’s manufacturer. 

Chinese Manufacturing Down Four Straight Quarters

Numbers for last month revealed disheartening numbers for the Chinese manufacturing sector. The official purchasing managers index (PMI) in January saw a marginal increase to 49.2 from December’s 49.0, not as positive as was hoped. This indicates there is persistently weak demand and an uncertain economic recovery in the world’s second-largest economy. 

Notably, the manufacturing PMI has declined in nine out of the past ten months, with the one and only increase observed in September. Analysts point to the softness in China’s economy, emphasizing the need for indicators such as new orders to return to expansion for sustained economic momentum. Additionally, despite efforts by Chinese policymakers to bolster the economy through infrastructure spending, interest rate cuts, and easing home-buying restrictions, concerns persist over the sustainability of growth, especially amidst global uncertainties and ongoing challenges in the property market.

China’s manufacturing sector is clearly continuing to slide. Particularly concerning is the contraction in new export orders, registering at 47.2 for the 10th straight month. While non-manufacturing PMI showed some improvement, the overall composite PMI stood at 50.9, suggesting a fragile recovery. Despite efforts to stimulate growth, including a recent cut in banks’ reserve requirement ratio, challenges such as a property downturn and weak global demand persist. The situation doesn’t look good for manufacturing in China. Of course, analysts remain cautious about the future, and they point to uncertain sustainability of China’s recovery amid ongoing policy adjustments.

Driving Factors

While Chinese manufacturing is obviously faltering, and the numbers indicate a long-term trend, it wasn’t always like this. China has stood as the world’s manufacturer for decades. Rising to unrivaled prominence in the 1990s, the China of the previous century is not the China of today. 

And as the country shifts gears and loses global market share, several driving factors come to mind.  No longer able to fulfil its historical role as the “factory of the world,” China’s factories are beginning to grapple with a new reality. Recent data reveals a stark decline in new manufacturing orders, down by 40%, thanks to several factors that combined to cause significant disruptions in China’s manufacturing sector. 

While other countries like Mexico have emerged as promising alternatives for US firms, Chinese manufacturing analysts will undoubtedly come to place the blame on several decisive factors that contributed to this demise, some more instrumental than others.

Zero COVID

China’s “Zero COVID” policy has profoundly impacted the country’s manufacturing economy, and the effects will reverberate for years to come. This draconian measure lasted long after 2020 and greatly exacerbated existing challenges, which in turn is negatively impacting Chinese industry, forcing companies to reconsider their operations there. 

The stringent measures, including widespread lockdowns, mass testing, and strict enforcement, severely hampered economic growth prospects. Despite initial signs of recovery, China’s industrial output responded with negative indicators across various sectors. Immediately:

• Industrial output fell by 2.9%
• Retail sales plummeted by 11.1%
• Export growth slowed to 3.9% 
• Unemployment rates rose
• GDP declined

As these challenges rose to the forefront, companies like Apple announced they are exploring alternatives to China for manufacturing due to the disruptive effects of the Zero COVID policy. There was a definite causal link between increased lockdowns and reduced interest in manufacturing there. And as China’s manufacturing sector buckled under these harsh measures long after the rest of the developed world returned to normal, the disinterest began to look more and more like a manufacturing exodus.

Costs Are Rising

The draw to offshore to China has always been about cost. Lower labor rates and materials made it highly appealing to US manufacturers who wanted to reduce costs for the manufacturing function. 

But in recent years, manufacturing costs in China are skyrocketing! Producer prices have surged to their highest levels in 13 years, contributing to a significant rise in consumer prices, up by 9% over the past year. Chinese manufacturers, facing mounting cost pressures, are struggling to absorb increased expenses, leading to rising prices for consumer goods. Several factors are driving these cost increases, including:

• Soaring raw material prices
• Unpredictable labor costs
• Rising transportation expenses
• Higher tariffs resulting from the recent trade war 

As a result, many US manufacturers are reconsidering their reliance on China and exploring alternative production strategies like nearshoring to Mexico. 

Population Declining

But there is a much more serious problem facing China right now. As the world’s former largest nation, China’s population is experiencing a historic decline. And this poses significant economic challenges for the nation. After decades of growth, China now faces a shrinking and aging population, jeopardizing its manufacturing prowess and economic stability. The relaxation of birth restrictions came too late to reverse the trend, leading to a loss of its title as the world’s most populous nation to India.

• China had 850,000 fewer people living there in 2022 than in 2021.
• Total births dropped to 9.56 million in 2022, the lowest number since 1950.
• 25% of the total Chinese population will be over 65 years old in 2040.
• The working age population (ages 15-59) dropped from 70% to 62% in just the past decade.
• China’s GDP growth was forecasted to be 5.5% in 2022 but turned out to be just 3%, the second lowest annual GDP since the 1980s.

The economic consequences of these numbers are profound. China’s labor force is shrinking, and the working-age population is shrinking even faster. Labor shortages are driving up wages and manufacturing costs, prompting businesses to seek alternative production locations like Mexico and Vietnam. This shift signals a fundamental change in China’s economic model, away from labor-intensive growth toward a post-manufacturing and post-industrial economy.

Chinese manufacturing is not just faltering in the short term. Experts predict that the nation will transition over the course of this century from a manufacturing economy to a services economy. And the drivers for this trend are not just recent crises that can quickly be overcome. It seems far more likely that drivers in place for many years have only been expedited by recent challenges, and that China will continue fading from the manufacturing scene in coming decades.

Illegal border crossings from Mexico into the United States continue to draw attention from the US government and calls for reducing the flow. However, in spite of frustration north of the border about perceived risks from an influx of illegal drugs and people of unknown origin, there is also reason to believe Mexico is taking steps to stop this.

The Current Situation

Right now, the United States is experiencing a surge in migration activity from Mexico. Some months, the Border Patrol encounters nearly 250,000 immigrants, mostly from Venezuela and other countries besides Mexico. Mexicans crossing the border make up only a fraction of this total number. Backlog and dysfunctionality in US immigration courts has led to a severe bottleneck in processing these migrants. 

There are several factors contributing to these historic immigration levels. Certainly, the geopolitical instability in countries like Cuba and Venezuela have resulted in many leaving their homes in search of safety, work, and better opportunities. Even Russians and Chinese are fleeing wars and government overreach to enter the United States via Mexico. 

Additionally, the tight labor market in the US is a contributing factor. The cost of labor in the US is very high, providing an incentive for foreign workers to seek better paying jobs north of the border.

However, it’s surprising to note that the number of immigrants living illegally in the United States is at historically low levels. The last data suggests the total number is less than 11 million people, just 3% of the current US population. Still, the millions of fentanyl pills and other contraband making it across the border have caused alarm among people in the US, who are demanding Mexico do something to stop it.

Mexican-US Collaboration

The US government has placed considerable pressure on the Mexican government to reduce this flow of illegal border crossings. And the two countries have been working together to a considerable degree. 

Just one year ago, the two countries met to approve an action plan for the 21st Century Border Initiative.  Representatives from both federal governments agreed on infrastructure upgrades and expenditures along the border, including border crossings, bridges, and ports of entry. The goal was to better facilitate and increase regional trade between the two countries while reducing illegal border crossings.

Both governments agreed to increase communication and share law enforcement information to facilitate better enforcement of immigration law and reduce legal crossing times. They agreed to implement strategies to reduce crime and violence in the region while also simplifying the customs process.

This past December, another meeting was held between US Secretary of State Antony Blinken and Mexican President Andrés Manuel López Obrador. During the meeting, the Mexican government stepped up efforts to remove immigrant camps along the border town of Matamoros near Brownsville, TX. Some 10,000 immigrants were arrested daily at the border, and the Mexican government sent bulldozers to clear out tent cities.

The Mexican government pushed the US to re-open border crossings that had been recently closed by the US in response to an immigration surge. They also sought to link future cooperation in border crackdowns to US measures to relieve pressure on Venezuela and Cuba. They argue that ending embargoes with, and providing aid packages to, these countries, from which many of the immigrants come, would go a long way in reducing the stream of immigrants leaving these countries. 

Mexico holds a presidential election this year to determine Obrador’s replacement. It is thought the frontrunner will likely continue his policies, including on immigration. But there is uncertainty. 

Additional Mexican Steps

Last week, a bipartisan group of Texas lawmakers visited Mexico City to see what the country is doing about the illegal border crossings. The delegation returned with a positive appraisal of Mexico’s efforts. Members of the delegation noted that Mexico is doing several things to meet US demands. Some of these measures include:

• Seeking out fentanyl labs to destroy them
• Deporting migrants ineligible for asylum along the northern border with the US
• Improving security along the southern border
• Stationing large numbers of troops along the US-Mexico border

In fact, the delegation was surprised to learn that Mexico has placed more military personnel along the US border than the number of Border Patrol the US has stationed there. Specific numbers were not shared publicly, but this news came on the heels of one report of 500 Mexican troops being deployed to just two border cities, Matamoros and Nuevo Laredo. By some estimates, there are around 40,000 Mexican troops stationed along the border.

The US is hoping to assist in Mexico’s efforts to seek out fentanyl labs and deport migrants who make it across Mexico’s southern border. This assistance will come in the form of intelligence gathering, technology assists, and partnerships to police both of Mexico’s borders.

Currently, along the Tijuana-San Diego border, Mexico is reportedly replacing old barriers with a new structure along the beach. While construction is underway, Mexico is boosting its military presence there to guard the gaps. In spite of temporary fences in the area, the Mexican government has increased troop presence out of an abundance of caution.