Nearshoring is the industrial practice of installing production plants in nearby countries in order to reduce costs in terms of facilities, services, labor, and sometimes even taxes. Unlike other offshoring services, it is characterized by the fact that it also reduces logistics costs due to proximity. What are the challenges of nearshoring in Mexico?
Currently, multiple governments and industries have identified Mexico as the next big nearshoring destination, especially because of its proximity to the United States and the large border they share. This represents a great opportunity for international companies and maquiladoras in Mexico, but some challenges need to be addressed.
The Three Biggest Challenges
Even though the nearshoring wave has resulted in a great increase in foreign investment in Mexico, experts point out that some factors may prevent companies from choosing Mexico for their new operations. So what are the challenges of nearshoring in Mexico?
- High specialization and lower production costs in other countries, such as Vietnam or China, may push companies to other offshoring spaces.
- Delayed economic development in Mexico, where connectivity, such as highways, railways, and ports need greater and faster growth, can also push companies elsewhere.
- Hardship to set up in the country due to regulatory difficulties.
Nowadays many efforts are being made to address these challenges; however, there is a 1,954-mile border between the United States and Mexico for very-nearshoring engagements that allow companies to reduce these challenges dramatically, resulting in very good business opportunities in Mexico.
What to Consider in this Context?
While other companies consider the whole of Mexico as an option for nearshoring, nowadays it is safer to consider cities along the border, reducing logistical costs even more, as well as leveraging their vast experience in exportations, as these cities typically have a foreign trade vocation. Particularly, Baja California stands out as the #1 State exporter manufacturer in Mexico, concentrating:
- +60 years of manufacturing experience
- +150 contract manufacturing companies (such as Foxconn, Bose, Samsung, Medtronic, Toyota, Sanyo, and Hyundai, among others)
- +120 industrial parks
- X3 seaports available (San Diego, Long Beach & Ensenada)
- X5 ports of entry to the USA (a sixth one under construction)
- X3 International airports (San Diego, Tijuana & Mexicali)
- Mexico’s 29 Agreements for the Promotion and Reciprocal Protection of Investment (APPRIs) with 30 countries and 14 Free Trade Agreements with 50 countries
Starting a Business in Mexico: What’s a Smart Thing to Do?
In order to reduce costs, risks, and the challenges of nearshoring in Mexico, a lot of solutions are being implemented by many organizations, focused solely on helping international companies establish their nearshoring operations in this country.
Either with the legal presence or without it (through a service agreement with a shelter company), international companies should be counseled in:
- Legal framework
- Tax & accounting
- US/MX customs border
- Labor relations
- Real estate and construction services
Tijuana EDC offers a wide variety of services including business consulting; site selection; strategic industrial alliances; initial recruiting support; customized follow-up, among others. If you are interested in looking for nearshoring options for the US or in legally conforming a company in Mexico or contract manufacturing solutions, contact Tijuana EDC for their professional and specialized services.
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