According to research, more U.S.-based firms now than ever are “nearshoring” activities to Mexico. Mexico has been a desirable industrial destination for decades, and this tendency seems to be growing. In its eighth annual Reshoring Index, a global management consulting firm identifies a big trend in the acquisition of manufactured goods from Mexico. The trend pertains to the acquisition of produced items.
What is the specific meaning of the phrase “nearshoring”?
This business strategy is referred to as “nearshoring” when a company relocates some or all of its manufacturing operations from the United States to Mexico. The word “nearshoring” was created as an alternative to the phrase “outsourcing,” which is more often used. At the close of the 20th century, offshoring grew in popularity as a method for firms to get access to lower labor costs by shifting their manufacturing operations to an offshore site, such as China and other Pacific Rim countries. This enabled firms to save money by taking advantage of the nations’ reduced labor expenses.
The expense of business travel to Mexico is much less than that of travel to other nations. This may result in an improvement in the quality of executive control of sophisticated processes. Mexico, on the other hand, has a far more modern industrial supply chain to serve more advanced sectors, such as the automotive, aerospace, and electronic product manufacturing industries, then the majority of Southeast Asian nations. Due to its role as a prominent manufacturing centre, it has attracted component suppliers to its several regional industrial clusters for decades.
In the past, manufacturing in China was so much more cost-effective that it was able to outweigh the many disadvantages of relocating to such a remote region. Currently, the labor rates in Mexico are cheaper than those in China; nevertheless, this is not the sole reason why nearshore manufacturing is chosen; rather, it is merely one of numerous factors.
A growing number of companies are considering nearshoring as an alternative to offshore production because of the various benefits it provides. Let’s have a look at the most important advantages of nearshore outsourcing:
- IP rights are strongly protected –
When it comes to protecting intellectual property (IP), the United States is in a unique position. Approximately one-third of the American workforce is employed by enterprises that rely significantly on intellectual property.
- Low cost of labor –
Compared to the United States, nearshore Mexico labor costs are much less than those in the United States. This is due to Mexico’s lower national average cost of living.
An entry-level worker in the United States costs three times as much as a skilled worker in Mexico. In addition, China’s labor costs are rising. According to the World Wage Report of the International Labor Organization, salaries in China have increased by more than twofold between 2008 and 2019.
Due to the reduced production expenses, Mexico’s cheap monthly labor costs are an appealing option for US corporations.
- The availability of a skilled workforce is also important –
Mexico is home to a large pool of highly qualified workers that may be found at a reasonable price. There has been a steady rise in the quality of Mexican workers and managers in recent years. Due in part to the country’s increased educational levels, this has occurred. As a result, these people have a deep understanding of both nations’ cultures and are fluent in English. As a result, they are better able to meet the demands of US-based corporations.
- Shorter supply chains –
The pandemic of the Coronavirus has impacted the industrial sector, as well as the worldwide supply chain. Flexible supply chain solutions are becoming a must for businesses. In addition, dealing with a nearshore recruitment service in Mexico, reduced transportation expenses and shortens the time it takes for items to reach the market. Nearshoring to Mexico is considerably superior to offshore to countries in the furthest reaches of the globe.
- Affluent economic relations with the united states –
The United States has the greatest commercial relationship with Mexico. As a result of such agreements, commerce between the two nations is robust and stable.
The USMCA promotes the establishment of manufacturing facilities in Mexico by US businesses. As a result of this pact, the three largest economies in North America may trade freely. It is now possible to take advantage of trade gains in other countries, not only Mexico.
U.S. companies can have access to several international markets if they establish manufacturing operations in Mexico. This is due to Mexico’s involvement in international free trade agreements.
This is in stark contrast to the hostile relationship between the United States and China. Due to recent trade disputes, political differences, and an epidemic, US-Chinese commercial ties have been severely harmed.
- Even during the COVID 19 pandemic, a business may go on as usual –
The US-Mexico border has remained open for commerce during the outbreak. Manufacturing operations in Mexico continued to run well for many companies.
It has been challenging for US corporations to operate in Asian nations where they have typically built up manufacturing units because of the COVID 19 outbreak.
Coronavirus pandemic might increase nearshoring to Mexico, with more U.S. workers
Nearshoring to Mexico has a competitive advantage over other possibilities, thus it may be a good option to consider. For American corporations, Mexico is an attractive nearshore partner because of its cheap labor costs and closeness.
An increasing number of businesses are nearshoring their operations to Mexico due to the country’s many benefits versus offshore. The COVID-19 pandemic has conclusively shown that supplier connections are more tenuous than previously anticipated. The nearshoring of production to Mexico increases these supply relationships. In addition, shifting manufacturing to Mexico shortens supply chains, hence reducing the time required to bring a product to market.