How Mexico is Fueling the Nearshoring Trend

Aerospace, Automotive, Industrial Manufacturing, Supply Chain
June 15, 2016

mexico-transportation-infrastructureAfter almost two decades of offshoring manufacturing across the Pacific, some automotive, technology, aeronautics and consumer electronics companies have decided to “reshore” their operations closer to home. For many, Mexico has become the near-shore destination of choice.

The reasons are clear: a strengthening U.S. economy and the trade benefits of NAFTA make Mexico an ideal sourcing partner. Lower labor and shipping costs and proximity to facilities create a compelling case for keeping manufacturing, production, and assembly a drive or short flight away.

Yet, any move to Mexico isn’t without its pitfalls. From scarce talent and facilities, to weak infrastructure and persistent security concerns, the Mexican market has both benefits and drawbacks.

Reshoring is gaining favor among manufacturers. Some 49 percent of manufacturing companies would consider reshoring at least part of their operations by 2020, according to a survey from Deloitte and The Manufacturing Institute. Among the reasons cited are favorable logistics and supply chains in the U.S., the diminishing cost structure differential, and increases in domestic demand.

Another study found that about one third of technology companies are near-shoring to place production closer to the consumer, and about 40 percent of those surveyed plan to return sourcing to the U.S. or Mexico.

Among the reasons companies cite for relocating operations to Mexico include the opportunity to:

  • Quickly dispatch technical resources to the region. Beyond the benefits of working in the same or proximate time zones, companies that source to Mexico can quickly send managers, operations or support teams to the region. This also allows the outsourcer to maintain the organization’s cultural “look and feel” across its operations.
  • Capitalize on truck and rail. No longer reliant on trans-Pacific shipments, facilities can be reached quickly and easily.
  • Tap low-cost labor and a rising manufacturing sector. Today, Mexico labor costs reportedly are 20 percent lower than those in China; back in 2000, they were almost 60 percent higher.

Considering reshoring or expanding your Mexico manufacturing, production or assembly operations? Do your homework and explore the country. From border towns to big cities to the interior, operations and workplace cultures vary by market. There’s no substitute for spending time with partners in-country to signal your interest in shared success.

Learn more by downloading Ryder’s updated Nearshoring report.

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