Nearshoring

Change in the offshoring paradigm

For decades, the offshoring practice has been the operational paradigm of supply chains around the world. The goal of this strategy is to reduce costs by migrating manufacturing and supply operations to countries with a lower manufacturing cost, mainly the ones located in Asia.

The COVID-19 pandemic generated disruptions in the supply chains that broadly depended on Asia and especially on China. This evidenced the vulnerability of offshoring, which was imperceptible before given the regularity that the world experienced.

The localization of manufacturing operations and suppliers, only from a cost perspective, has resulted in a natural consolidation at a regional or country level. However, from a risk management perspective, it is no longer an acceptable practice for a company seeking to lead in its market.

In the organizations’ supply chain, resilience involves more flexibility or a bigger capacity to adapt, especially from the manufacturing and supply point of view. This goes strictly hand in hand with the diversification of operations at a geographical level, in order to mitigate risk and guarantee sustainability in the event of a contingency.

Therefore, from now on, the key for all companies will be to find a balance between competitiveness and resilience. For that reason, nearshoring becomes the right strategy to diversify operations, and Mexico can offer relevant opportunities for the companies that provide for the North American market.

Nearshoring: opportunities in Mexico

Nearshoring is a strategy that not only looks to capitalize the operating, logistical, and commercial benefits of relocating manufacture and supply to countries that are closer to the source of the demand, but also calls for a geographical diversification to mitigate risks. This strategy has become increasingly important in the past years due to the impact of the pandemic and the commercial tension between China and the United States.

Benefits of nearshoring in Mexico

Mexico is an attractive alternative in relation to other low-cost locations in the world, as it offers diverse benefits among which we can highlight:

• Specialized labor at a lower cost.1 As of 2015, the labor cost in China has been higher than in Mexico. In 2019, it was 50% higher.
• Developed supply in diverse industries throughout the country. Mexico is one of the low-cost territories with higher growth in the specialized processes manufacturing sectors.

• Quick access to the North American market. This entails lower logistical costs, shorter times of delivery, and higher capacity to respond to disruptions in demand
• United States-Mexico-Canada Agreement (USMCA). Represents a competitive advantage regarding fees/duties in North America. In addition, Mexico is part of 13 commercial treaties allowing free commerce with 46 countries, among other commercial agreements.
• Easiness to begin operations. Mexico has been one of the low-cost countries with highest score in the World Bank's Ease of Doing Business ranking during 2020.