Key factors for Mexico to keep at the top of the nearshoring trend26/12/2023
Mexico is anticipated to drive substantial manufacturing growth in the coming years as industries seek closer, more cost-effective supply chains, especially in their engagement with the United States market in a nearshoring vs. offshoring landscape.The country presents logistical advantages over Asian markets due to shorter transportation routes and lower costs. Additionally, it boasts a competitive and cheaper workforce and fewer trade concerns than China. However, Mexico faces intense competition from countries like India, Vietnam, Thailand, and Malaysia in the race for foreign manufacturing investments. China also remains a formidable competitor in the global market.
Despite Mexico’s emerging dominance in nearshoring, challenges persist. The country must bolster Mexico’s appeal to foreign investors, especially amidst recent policy shifts favoring state-owned entities. To keep and attract more manufacturing operations, it must project a secure environment for investment and boost different aspects, which are the main challenges for the country to continue in its current position:
1. Sustaining the existent main trade agreements
The United States-Mexico-Canada Agreement dispute is an area requiring resolution. The ongoing discord has led to uncertainties, particularly regarding fairness in trade practices. Addressing such disputes is crucial to attract more foreign investment.
In addition, Mexico’s stance on genetically modified corn imports from the United States has stirred controversy. Such trade disputes can impact Mexico’s trade relations and need resolution to avoid disruptions and foster a conducive investment environment.
Mexico needs to expand its labor pool and manufacturing base beyond the border areas. While regions along the United States-Mexico border remain central to Mexico’s export manufacturing, diversification across other states is vital for sustainable growth. Public policies should focus on creating competitive environments for manufacturing to flourish in these areas.
Enhancing manufacturing incentives at the federal level is crucial. Mexico’s federal government must align wage policies to attract investments in various regions. State governments have proactively attracted Original Equipment Manufacturers (OEMs), creating ecosystems of suppliers, like the automotive industry’s development in Bajio.
2. Improve energy infrastructure and technical capacity in various regions
Mexico faces energy concerns, a crucial factor for companies setting up factories. Uncertainty around the electricity industry poses a challenge and requires regulatory clarity from the federal government to ensure stability and confidence for prospective investors.
3. Reinforce industrial diversity
The diversity in Mexico’s exports to the United States underscores its strength in producing various goods, from automobiles to household appliances and medical instruments, further emphasizing the need for an expanded manufacturing footprint.
Mexico must also focus on creating more warehouse and industrial spaces to meet burgeoning demand. With a mere 1.6% vacancy rate for industrial spaces, there’s a growing need for more spaces exceeding 100,000 square feet (nearly 10,000 square meters). Labor and transportation cost considerations primarily drive this demand.
Furthermore, investment in infrastructure, including the Monterrey-Nuevo Laredo highway, is crucial for efficient trade between the United States and Mexico. Considering its significance in the trade route, this highway’s enhancement and security are vital.
4. Keep the strength of the manufacturing programs
Mexico’s Maquiladora (manufacturing) program (IMMEX) has been pivotal in attracting foreign investment. Simplicity is critical to making it more attractive. Consolidating the different IMMEX licensing programs into a single streamlined process would reduce administrative complexities, making it more enticing for foreign companies.
Mexico stands at the forefront of the nearshoring trend but needs strategic interventions to maintain its position and tap into its immense potential for further growth.
In a nearshoring vs. offshoring global landscape, the Mexican industry must keep the conditions that have allowed the attraction of foreign enterprises’ industrial activities and take an important place in the global economic dynamics.
Suppose your company is looking to enhance operations in the country. In that case, Frontier Industrial rents industrial buildings, land for sale in Mexico’s most important areas, and the development of tailor-made projects (Build-to-Suit). Please feel free to contact us to receive more information.