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Making the decision to manufacture in Mexico is not a light one. So, in weighing the pros and cons of Mexico-based manufacturing, it is important to fully understand what has made Mexico so attractive to so many companies.
Sure, it’s a popular option. But why? Is nearshoring just a fad, a trend that will come and go? Or is there something much larger underlying the shift? We at TACNA have seen this trend grow for many years, and we understand the drivers behind this movement to nearshore.
If you’re looking for more cost-effective alternatives to manufacturing in the US, you’ve probably investigated other countries like China. But as you’ll come to find, Mexico offers several fundamental advantages over other popular offshoring destinations. These distinguishing factors provide clear reasons to invest long term in Mexico as a manufacturing destination for decades to come.
The US is currently experiencing an unprecedented labor supply shortage that has left US producers scrambling to keep their operations staffed. This difficulty to find personnel has resulted in ever-increasing labor costs and challenges meeting deadlines.
For a manufacturer, flexibility and agility are paramount. Operations must have a deep labor pool from which to draw. And for those manufacturers requiring more than simple assembly, skilled manufacturing labor is a priority. Fortunately, one reason to manufacture in Mexico is their vast supply of well-trained engineers and technicians.
Mexico’s economy is built around manufacturing. Its universities focus on industry needs. And students often have job offers lined up before graduation day. Mexico’s federal and state governments prioritize manufacturing skill and invest heavily in training programs and focused education to meet industry requirements. More than 100,000 engineers graduate in Mexico per year. And Mexican skilled labor is increasing in its capability, sophistication, and innovation.
Tariffs are a significant concern for international manufacturers. The ability to trade between nations while minimizing tariff exposure is critical. Fortunately, Mexico has free trade agreements (FTAs) with more than 50 nations, making Mexico the global leader for duty-free manufacture for export. Approximately 14 agreements have opened up preferential trade access to approximately 60% of the world’s gross domestic product.
This means US companies that choose to manufacture in Mexico can open up a greater market to export goods to. Mexico is a leading exporter to Asia, South America, and Europe. But with the USMCA, Mexico also enjoys free trade with the United States and Canada. Under the terms of this agreement, US companies may open a maquiladora manufacturing operation in Mexico and import materials from the US and export finished goods back to the US duty free. Indeed, over 75% of Mexico’s goods are currently exported to the US.
Perhaps the most important factor manufacturers consider relocating to Mexico and the biggest reason they should consider doing so are the cost savings. Mexico offers manufacturers several ways to save, some of which include:
If COVID has taught us anything, it is the need for flexibility and preparedness. Markets change rapidly. What sets apart truly successful companies is their ability to respond quickly to market demands in a timely fashion. Making the decision to manufacture in Mexico means simplifying and shortening supply chains. This means faster time to market and better responsiveness to shifting demands.
Further, Mexico offers flexibility in product type and industry. The country is home to numerous industry clusters, hubs, and niche manufacturing facilities for a wide variety of products. And US firms may take advantage of Mexican real estate virtually anywhere – whether along the US border or in specialized industrial regions like the Bajio.
These and other fundamental advantages provide US manufacturers reason to manufacture in Mexico over other popular destinations. From cost savings to agility to long-term resilience, Mexico has much to offer the strategically minded manufacturer.