Manufacturing in Mexico: The Rising trend of Reshoring and Nearshoring in the USMCA Region

By Gerardo Gonzalez | Guanajuato Regional Director at American Industries Group®
Published 08/29/2023

In recent years, there has been a striking rise in the trend of reshoring and nearshoring, with many companies relocating their production centers to where they are based or closer to potential customers and markets. Several geopolitical factors are driving this trend, with offshoring becoming less and less appealing. As a result, companies are prioritizing supply chain agility and business continuity and finding that these solutions enable them to enhance supply chain resilience and transparency and offer a range of other benefits, including streamlined logistics and cost savings, particularly in favorable destinations like Mexico.

In this article, we will discuss some of the factors driving reshoring and nearshoring trends, the benefits they bring to North America and the USMCA region as a whole, what factors companies consider when deciding where to relocate operations, and the benefits of manufacturing in Mexico.

Several factors are driving the recent boom in reshoring and nearshoring initiatives. Firstly, the pandemic revealed significant vulnerabilities in American manufacturing strategies. The billion-dollar losses these weaknesses caused have prompted policymakers and business leaders to look for solutions to mitigate and reduce risks in the long term. Additionally, ongoing global conflicts and geopolitical instabilities, including the war between Russia and Ukraine and tensions in Asia and Europe, have further incentivized companies to focus on relocating manufacturing operations and supply chains back to North America. Another significant factor is the United States escalating tensions with traditional offshoring partners, such as China, and consequent rising tariffs.

relocating manufacturing operations and supply chains

One of the most critical solutions companies are finding to reduce dependency on China, create more agile supply chains, and improve business continuity is the regionalization of manufacturing activities. Having operations and suppliers closer to headquarters allows businesses to develop stronger relationships with suppliers and bolster regional supply networks.

This investment in North American supply networks is a win-win situation for all three countries in the USMCA region. A more interconnected North American supply chain fosters economic growth through increased trade and investment, enhanced competitiveness across the entire region, streamlined trade processes, and job creation, leading to overall economic growth. The mutual benefits extend beyond economic gains, nurturing closer diplomatic ties and strengthening North America’s collective influence in the global arena. A shared commitment to reshoring and nearshoring aligns with the principles of the USMCA of driving prosperity and sustainable development in the US, Canada, and Mexico alike.

As the reshoring wave in the United States continues, several crucial factors influence the decision of where to relocate. Some pivotal considerations include an area’s distribution and logistics benefits, with location advantages and proximity to efficient ports at the top of the list, as well as accommodating regulatory requirements, local and state tax savings, and robust infrastructure. Furthermore, a favorable business climate is a compelling incentive as companies seek areas conducive to growth, innovation, and long-term success. Another significant factor that can be a hurdle in reshoring for US and Canadian companies is the cost of doing business. In this case, Mexico emerges as a competitive option when reshoring isn’t a feasible solution.

The advantages of manufacturing in Mexico include greater supply chain integration, meaning increased collaboration between all stakeholders in the supply chain. Its strategic location allows for improved coordination, meaning decreased logistics costs and more efficient use of resources. This proximity also facilitates more effective quality control and oversight, enabling companies to closely monitor production processes, reduce defects, and maintain consistent product quality. In addition, it decreases time-to-market, allowing companies to respond more quickly to changing consumer demands, and increases flexibility and agility, making it easier to respond to unexpected disruptions. Furthermore, Mexico is renowned globally for its skilled and ample labor force. Businesses can tap in to this talent pool to fill a range of roles, from skilled engineers to production line workers. In addition, Mexico has established industry clusters in sectors like automotive, electronics, and aerospace. Nearshoring to Mexico enables companies to tap into these specialized ecosystems, fostering innovation and collaboration.  

USMCA

As you can see, there are many reasons that nearshoring emerges as a strategic alternative that provides competitive solutions to many of the key considerations motivating companies to consider reshoring. Manufacturing in Mexico allows US companies to bolster their operational resilience and tap into the wealth of its manufacturing ecosystem while contributing to further developing the North American economic block and supply chain.

In the rapidly evolving global commerce landscape, reshoring and nearshoring have emerged as effective strategies for companies navigating supply chain complexities. Geopolitical shifts, supply chain agility imperatives, and the pursuit of business continuity drive these trends. The US, Canada, and Mexico are working together to unlock supply chain efficiencies, bolster job creation, and foster technological innovation. At the heart of these strategies lies Mexico, a strategic nearshoring destination offering proximity, skilled labor, and business-friendly environments. The benefits of reshoring and nearshoring transcend borders, fostering a dynamic ecosystem that thrives on collaboration, innovation, and shared prosperity. In the USMCA region, these trends paint a promising future marked by resilience, growth, and the collective pursuit of a more interconnected and prosperous North America.

Gerardo Gonzalez

Guanajuato Regional Director

American Industries Group®

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