Nearshoring has quickly become the term du jour regarding sourcing and production. Increasingly attention has been shifting to bringing operations back from overseas. A lack of worker’s rights and laws have kept wages at a strikingly low rate. Now, increasing labor costs have lessened the appeal of international manufacturing. Also, tariffs and uncertainty over global trade and the economy have only added to the strife.
Bringing Manufacturing Back to Mexico
For many U.S companies looking for where to nearshore, the answer may now lie south of the border. Interestingly, around 40-50 years ago many U.S companies started to move their manufacturing to Mexico in search of lower labor costs and the large workforce. Although, after China entered the World Trade Organization in 2001, much of this labor moved overseas.
Now, attention is shifting back to Mexico due to lower labor rates than domestic production, as well as proximity. Mexico’s manufacturing hub is growing as more companies, such as Levi’s, are opting for it as their production center. Also, there are additional benefits to U.S companies to nearshore to Mexico.
Protection and Services
The Mexican government enacted protections and services, meant to attract businesses to Mexico. The Mexico Shelter Service helps companies navigate business regulation and law. They assist with customs compliance, rules on corporate accounting, taxes, environmental laws, governmental requirements on employers and more. That way, every company starts on the right foot. Another benefit is the Reciprocal Promotion and Protection of Investments Act (RIPPA). This mandate is a promise for foreign companies that ensure their patents and trade secrets are safe from theft and other illegalities.
The government has been at work establishing technical training centers and programs in which citizens can learn various trades. Many domestic businesses and international ones have jumped on board and started their plans to provide the workforce (and their own companies) with the educated and skilled people they need.
In Mexico, it takes two weeks for foreign entities to complete the processes for permits, licensing and governmental approvals. This agility has businesses hiring and functioning as soon as possible. The proximity of Mexico to the U.S and Canada also simplifies business travel and other aspects such as large time differences that can pose problems on the other side of the world. These factors make shipping and supply chain management much more relaxed and less costly. Proximity, simplification, labor, and value are key reasons that Mexico will be one of the top nearshoring destinations for North American companies. Besides, by manufacturing in Mexico, companies are exposing their product to an entirely new market. Mexico’s skilled workforce is growing along with their spending power making them a viable market.