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.
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.
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.
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.
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.
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.
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.
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.
