Nearshoring, its potential benefits and what Mexico needs to take advantage of them
What is Nearshoring?
Nearshoring is the transfer of production operations to a closer country.
Trade tensions between China and the United States, the conflict between Russia and Ukraine and the different situations triggered by Covid-19 have increased logistics costs from China (and Asia in general) to the United States, which has triggered important U.S. companies to relocate or open new production plants in Mexico instead of the main manufacturing countries in Asia. This has been called “Nearshoring”.
Ricardo Rocha, Director of Logistics and Services for Latin America and the Caribbean at Maersk (one of the most important Danish shipping companies in the world) in an interview with El Economista commented that “Mexico has a strategic location and a logistics-legislative model that allows it to grow differently from other Latin American countries”.
European and North American companies, above all, see nearshoring as an opportunity that allows them to transfer production processes located in distant destinations (such as Asia) to reduce manufacturing and maquila costs while diversifying and reducing the risks of keeping their suppliers in China.
Potential benefits of Nearshoring for Mexico
In a Bloomberg article, Gabriela Sodi, Chief Investment Strategist at UBS (a global firm that provides financial services to private, corporate and institutional clients) commented: “We think that for now the impact of nearshoring on Mexico’s economic growth, while positive, will be marginal. Which points to the fact that being conservative may be a good bet, however according to FORBES magazine, some economists have ventured to forecast that given the necessary conditions, nearshoring could achieve Foreign Direct Investment (FDI) of US$50 billion dollars
annually (versus the historic high of US$35 billion dollars achieved by Mexico in 2018).
Derived from the increase in Foreign Direct Investment, Mexico could strengthen in:
- Creation of high-paying, quality jobs, mainly in the logistics and manufacturing sectors.
- Growth of specialized knowledge in Mexico
- Strengthening of the value chains of important and solid foreign companies in Mexico.
- Strengthening of national and regional supply chains.
- Growth of the automotive sector, which could be one of the sectors to benefit the most from the T-MEC (Source: FORBES)
- Possible development of automotive and logistics clusters (among others) in the country.
- Greater use of Mexico’s 14 free trade agreements with 50 countries.
What does Mexico need to take advantage of the opportunities presented by Nearshoring?
Below is a list (consolidated from sources such as El Economista, FORBES, El Financiero and Bloomberg) of what we consider to be the priorities that Mexico
needs to take advantage of the opportunities presented by nearshoring.
- Political and economic certainty for the export sector
- Improved water supply
- Greater legal certainty in the energy sector (electricity and gas where necessary).
- Increased security in production trade routes
- Enforcement and respect for intellectual property protection laws
- Investment in talent development and specialized talent
- Investment in infrastructure and logistics (ports, roads, railroads, airports, telecommunications and 5G)
- Clean energy generation
- Improving the time it takes to obtain programs for exports.
In relation to nearshoring, the Logistik Industrial Park has all the facilitiesconsolidates all the elementos for the development of any industrial project, thanks to its
geographical position close to industrial development poles and the most important ports of commercial exchange in the country. BEYOND WELL is the acronym that summarizes the main competitive advantages that the Logistik Industrial Park can offers to multinational companies interested in nearshoring in Mexico.
The exceptional mix of energy and water availability, extensive land and connectivity, consolidate consolidate define Logistik as the most important industrial park in the centercenterre of the country.