Why More Manufacturing Industries Are Nearshoring to Mexico [2023]

Last Updated on June 26, 2023

Many companies that had operations in China are nearshoring to Mexico their operations due to the global supply chain problems, problems with intellectual property theft, and cost of labor. The automotive, medical and appliance sectors continue to have a significant presence in Mexico.

Shelter manufacturing services in Mexico offer more logistical benefits than those in China.  According to Manufacturing Global: 

Many U.S. manufacturers with highly intensive processes are feeling a cost crunch, and Mexico could be the solution they’re looking for. Manufacturing industries of all kinds are moving part of their operations south of the border in order to reduce costs, receive more convenient shipping, and make travel to [...]

The investment in Mexico as a manufacturing destination increased significantly in 2022, according to Supply and Demand Chain Executive:

In only the first half of 2022, Mexico received $11,836 million in investment, amounting to almost 90% of what the country received in 2019. In 2020, there had been a dramatic decline of 20% due to the pandemic. If comparing 2021 to 2019, the pandemic disappears from the picture, with a CAGR of 6%.

The Transition From Offshoring to Nearshoring to Mexico

Many companies have found that the benefits of moving manufacturing to a low-cost strategic location, such as China, even though it is located on the other side of the world, represent substantial savings opportunities. The long-term sustainability of this situation has proven to be challenging.

Labor costs in China, and other geographically distant low-cost locations, have increased significantly in recent years. Due to this, entrepreneurs have been faced with many security and intellectual property risks. A significant difference in time, culture, and language is also present in addition to these factors. At the end of the day, what initially seemed profitable is no longer the best option when it comes to reducing manufacturing costs and mitigating supply chain risks.

As a result of its strong interdependence with the US economy, Mexico is well positioned to benefit from nearshoring. Mexican manufacturers have a strong technical capability, including cutting-edge automation.

“Mexico turns out a tremendous number of engineers,” said Ambrose Conroy, CEO of Seraph management consulting. “There’s a lot of good capability down there to deliver manufacturing engineering and make products.”

Industries Set to Benefit from Nearshoring

Manufacturers and other businesses can benefit from nearshoring to Mexico in several ways. 

The following are a few of the most important:

Automotive: USMCA rules of origin will change for automotive in mid-2023, requiring even more regional content to qualify for beneficial tariffs (from 62.5% to 75% of total content value). The Biden administration has also allowed tax benefits for people purchasing electric vehicles manufactured in North America rather than just the United States. This was originally proposed in the Inflation Reduction Act. Nearshoring automotive manufacturing is expected to be driven by both of these factors.

Medical: Medical devices remain the most important industry to nearshore to Mexico. It is a well known fact that Mexico is a highly valued production location for many types of plastic injections, assemblies, efficient cutting and sewing, etc.

Appliances: According to the Office of Technology Evaluation, in 2021, U.S. imports of Machinery and Mechanical Appliances from Mexico also increased from $121.5 billion in 2020 to $141.4 billion, making up 17.2% of all U.S. imports of those commodities worldwide. According to Investopedia, Mexico is a large producer of home appliances, including washing machines, refrigerators, and air conditioners. In this category, Mexico accounts for between 30% and 44% of U.S. imports.

FAQs about Why More Manufacturing Industries are Nearshoring to Mexico

Q1: Why are more manufacturing industries choosing to nearshore to Mexico?
A1: There are several reasons why more manufacturing industries are nearshoring to Mexico. Mexico offers a strategic location with proximity to major consumer markets in North America. It provides a skilled and cost-effective labor force, a robust infrastructure, favorable trade agreements, and a stable business environment. Nearshoring to Mexico allows companies to reduce costs, improve supply chain efficiency, and maintain close collaboration with their operations.

Q2: Is nearshoring to Mexico only beneficial for specific manufacturing industries?
A2: Nearshoring to Mexico is not limited to specific manufacturing industries. Various sectors, such as automotive, aerospace, electronics, medical devices, consumer goods, and many more, have found success in nearshoring their operations to Mexico. The country offers a diverse manufacturing landscape that can cater to different industry requirements and product types.

Q3: Are there any challenges that manufacturing industries may face when nearshoring to Mexico?
A3: While nearshoring to Mexico offers numerous advantages, there can be challenges to consider. These challenges may include navigating cultural differences, language barriers, supply chain logistics, managing cross-border operations, and complying with local regulations. However, partnering with experienced nearshore service providers and implementing effective communication and project management strategies can help mitigate these challenges.

Q4: Can nearshoring to Mexico result in cost savings for manufacturing industries?
A4: Yes, nearshoring to Mexico often leads to cost savings for manufacturing industries. Factors such as lower labor costs compared to developed countries, reduced transportation expenses, decreased inventory carrying costs, and streamlined supply chain operations contribute to overall cost savings. Mexico's cost advantages make it an attractive option for companies looking to optimize their manufacturing operations.

Q5: How does nearshoring to Mexico contribute to supply chain efficiency?
A5: Nearshoring to Mexico improves supply chain efficiency in several ways. The proximity to major consumer markets in North America reduces transportation lead times and costs. It allows for just-in-time inventory management, easier collaboration with suppliers, and more efficient order fulfillment. Additionally, Mexico's established logistics infrastructure and border proximity facilitate smooth movement of goods, enhancing supply chain responsiveness.