Nearshoring is a business practice of outsourcing services or business alliances to geographically close countries. One of the main objectives is to shorten production chains by repositioning subsidiaries and hiring labour and suppliers in locations close to the headquarters.
Another purpose of nearshoring is to bring production as close as possible to the markets where the products will be sold, facilitating logistics and the flow of goods.
And Mexico is the country most likely to benefit from this trend, which has gained momentum during the pandemic in an attempt to circumvent the logistical crisis imposed by the border closures.
Why is Mexico the centre of nearshoring?
A few decades ago, the trend was towards offshoring, taking factories to geographically distant countries such as China and India. What matters now is to be closer to consumer markets.
And large global companies, especially Asian ones, want to be very close to the United States, the world’s largest market. And to reach that market, Mexico is the main route.
According to Forbes, Mexico’s National Council of the Maquiladora and Manufacturing Export Industry (Index) estimates that more than 50 billion dollars will be invested in the country by 2024 thanks to the relocation of companies from Asia and the United States. And at least 60 per cent of all this investment will go to the manufacturing industry, the main engine of the country’s economy.
Mexico’s opportunity to benefit enormously from nearshoring is virtually unbeatable. Asian companies are already finding it difficult to find space for industrial parks, according to the Mexican Association of Private Industrial Parks (AMPIP).
And it is not only Asian companies that are moving their production to Mexico. In addition to many US companies, Spanish, Swiss and German companies are also migrating to the country with a view to selling their products to the United States and the rest of America.
Advantages of nearshoring for foreign companies
Nearshoring is gaining more and more ground due to its multiple advantages. For foreign companies that relocate their production to Mexico, the benefits are:
- Geographical proximity and ease of management. Reduced transport logistics costs and shorter delivery times. Facilitates frequent visits and direct communication between teams, which can boost collaboration and efficiency. More effective management strategies can be implemented.
- Competitive labour costs. Labour costs may be lower than in some developed markets.
- Cultural and linguistic alignment. Greater cultural and linguistic understanding can facilitate effective communication and reduce misunderstandings. The ability to work in similar time zones facilitates real-time collaboration.
- Risk reduction. There is less exposure to geopolitical risks compared to offshoring, as well as better control of local regulatory and political issues.
- Agility and flexibility. Ability to quickly adjust operations in response to changing market demands, as well as greater ability to adapt products and services to local market trends and preferences.
- Environmental sustainability. Reducing carbon emissions associated with long-distance freight transport.
- Tax benefits and incentives. Possible access to tax benefits and incentives offered by the local government to attract investment and promote economic growth.
Advantages for Mexican companies
If nearshoring is a smart way for foreign companies to reduce costs, for Mexican companies, especially manufacturing companies, it is time to take advantage of it:
- Develop local skills. Fostering local skills development and supply chain development, contributing to economic growth across the country.
- Job creation. The high level of investment that Mexico has received has boosted job creation by increasing the supply of vacancies in the sectors most favoured by nearshoring.
- Incentives for the training of technical professionals. With the increasing demand for technical professionals, it is to be expected that there will be more incentives to offer vocational training courses. Career opportunities are multiplying and you need to be prepared.
- More investment. The manufacturing industry in particular will receive more investment and incentives, probably from the government, to meet the needs of foreign companies established in Mexico.
The best way to take advantage of nearshoring
The best – and perhaps the only – way to reap the benefits of nearshoring is to embrace digital transformation. The analogue world must be left behind once and for all, and the path of innovation in business must begin.
Technological development must be seen as the only way forward. There is no other way.
Mexican institutions such as Index and the Federal Telecommunications Institute (IFT), for example, are driving telecommunications and digital transformation agendas. According to Forbes, through a collaboration agreement, both institutions want to map Mexico’s needs in cybersecurity, digital services, 5G technology and other technologies necessary for companies to be aligned with nearshoring.
Cloud computing and cybersecurity
Cloud computing is a great ally for companies that want to integrate information to optimise time and resources and ensure a competitive advantage. With or without nearshoring, it is essential for businesses to continue to exist in scenarios that require flexibility, agility, scalability and decision making based on large amounts of data.
In a context of nearshoring, the journey to the cloud can be decisive for those who want to grow and establish themselves definitively in the market.
And along with the cloud, investments in cybersecurity are more than necessary, they are vital for any business. Today, you need to be protected against bold intrusions and data loss.
Do you want to start your company’s digital transformation and migrate to the cloud securely? Wevy has all the expertise your company needs. Contact our experts.
