Why More Global Companies Are Nearshoring to Mexico
March 14, 2022
Nearshoring is not a new phenomenon. For decades, foreign companies have recognized the value of manufacturing in Mexico. However, nearshoring to Mexico has grown dramatically in recent years and is unlikely to slow down anytime soon. Here’s why.
The Russia-Ukraine conflict has led to material shortages, such as essential automobile components. Semiconductors were already in short supply, and now supplies of wiring systems manufactured in Ukraine are being cut off. On top of these shortages, many big-name car manufacturers have halted production in Russia and are now scrambling for ways to return production to normal.
Should the conflict continue, these companies will likely look for new locations in order to diversify and strengthen their supply chains. Mexico is one of the most advantageous given its robust automobile manufacturing industry.
Tax and labor costs in China were already climbing, and now worries over United States-China trade relations are pushing companies to look elsewhere for their manufacturing. The ongoing trade war doesn’t show signs of slowing down, and now, the Russia-Ukraine conflict is increasing U.S.-China tensions. In addition to concerns over the strengthened trade relationship China and Russia have formed in recent years, China’s unclear stance on Russia’s invasion of Ukraine continues adding pressure on businesses to move their manufacturing closer to home.
Furthermore, strict COVID-19 regulations in China, such as a pause on almost all international flights and cutbacks on business visas, have left many companies unable to get personnel into the country to oversee their operations. Those that are heavily reliant on China are beginning to contract or build factories elsewhere, with Mexico high on the list due to its stable trade relationship with the U.S. and its close proximity, enabling easier on-site visits.
ONGOING SUPPLY CHAIN CHALLENGES
Russian and Chinese supply chains are not the only ones unsettling global manufacturers. The disruptions caused by the COVID-19 pandemic have highlighted the overall importance of more flexible and resilient supply chains—no matter where a company’s networks are currently located.
Global companies looking to target U.S. markets receive significant advantages by moving their operations to Mexico. Manufacturing in Mexico allows them to establish shorter supply chains, which are naturally less prone to disruptions. If disruptions do occur, the enhanced visibility and transportation versatility give manufacturers a competitive edge that is unavailable to companies with long and complex overseas supply chains.
HIGH TRANSPORT COSTS
By moving their manufacturing to Mexico, manufacturers don’t just get better transportation versatility. The overall costs of transportation to and from U.S. markets are much lower as well, especially in comparison to China. Rather than relying on planes and ships to transport goods, they can utilize Mexico’s robust highway and railway networks, many of which stretch far into the United States.
HEIGHTENED ENVIRONMENTAL CONCERN
Taking advantage of the variety of transport options available in Mexico not only drives down costs but can also reduce a manufacturer’s carbon footprint, which has become increasingly critical in the face of the ongoing climate crisis.
Shipping generally does less damage to the environment than road or air transportation would going the same distance, but the problem is the extremely large scale of global shipping. For manufacturers with target consumer markets in the United States, Mexico offers an opportunity to significantly cut down on their shipping distances and with them, their greenhouse gas emissions.
Higher-Quality Manufacturing. Less Risk.
Whether you’re feeling the pressure of global conflicts and fragile supply chains or just looking to cut costs, it’s time to start manufacturing in Mexico, and we’re here to ensure you’re set up for long-term success. With our administrative and compliance management program, you get all of the operational and financial benefits of manufacturing abroad without any of the risks.
Contact NAPS to learn more about how we can help you become one of the many companies that are nearshoring in Mexico.