With impacts to the world economy and supply chains around the globe as the result of the Coronavirus pandemic, as well as the United States’ ongoing trade war with China and changing trade tariffs related to country of origin rules outlined in the United States-Mexico-Canada Agreement (USMCA) that enter into effect in July, Mexico has become the leading destination for companies looking to relocate their manufacturing operations.
From January 2016 to March 2020, international companies have announced hundreds of relocation projects to start up business in Mexico, making it the most popular destination in the world for foreign investors to relocate manufacturing operations.
The trend, which has been gaining momentum since 2009, has been further accelerated with the coronavirus pandemic. This global crisis has revealed latent weaknesses in the global value chain, in large part due to overdependence on China. According to Jonathan Wright, Global Head of Cognitive Process Re-Engineering at IBM, in order to adapt and thrive in a post-Coronavirus world, companies will need greater supply chain visibility from end to end, as well as to implement hyper-automation and increase nearshoring.
In Mexico industrial real estate, since the end of the last quarter of 2019 with the start of the pandemic, there has been greater interest in short-term leases in Mexico City and along the Mexico-US border. Industrial property developers in Mexico report increased activity in the electronics industry and consumer markets in Mexico’s largest cities, including Mexico City, Guadalajara and Monterrey, as well as nearshoring taking place in cities along the border, including Tijuana, Ciudad Juárez and Reynosa.
In addition to ecommerce warehousing and electronic manufacturing Mexico, a large number of multinational automakers have also chosen to relocate their operations to Mexico in order to adapt to changes in global trade. Due to new rules outlined in the USMCA, automobiles are now required to have 75% of their components manufactured in Mexico, the US, or Canada to qualify for zero tariffs (an increase from the 62.5% under NAFTA).
Mexico has also expanded the benefits it offers for international companies in Mexico under its IMMEX program, which allows manufacturers to receive a range of fiscal and other benefits. Additional advantages of manufacturing in Mexico include competitive labor rates (due to a recent depreciation of the peso against the dollar), shorter lead times, reduced transportation costs, and increased intellectual property protection mandated under the USMCA.
Though the global business and manufacturing community is facing many challenges and uncertainties, one thing is clear in this rapidly-changing environment: companies that can quickly adapt, innovate and search for creative solutions to new problems will come out on top and be poised to earn greater shares of new markets. If you are thinking about relocating your manufacturing operations to take advantage of all Mexico has to offer, it is a good idea to consider using shelter services in Mexico. This will allow you to have an experienced partner on your side ensuring that you can mitigate risk, lower costs and quickly set up operations.