With activities beginning to return to normal across many cities in the United States, a sector of the economy experiencing a boom in demand—manufacturing—is facing a critical lack of workers. Though unemployment levels have continued to fall in 2021 as the economy rebounds, US manufacturers are struggling to find and retain talent that will allow them to keep up with product demand.
In its recently published Labor Shortages Solutions Survey, the Conference Board reported that 85% of companies in the trade, manufacturing, and manual services sectors are experiencing recruiting difficulties. Many factors are contributing to this current labor shortage in the US, including long term factors such as a decrease in the US working-age population, an overall decline in manufacturing in the US for over a half-decade due to offshoring and increasing automation in factories, as well as already decreasing participation rates of non-college graduates of working-age in the labor force (especially young men).
Additional factors related to the pandemic include a significant drop in labor force participation by 16-24 year-olds, a significant increase in disability rates, and a disappointing recovery in labor force participation overall. One reason for the lackluster recovery is that many currently unemployed individuals worked in the service sector before the pandemic. Despite the abundance of well-paying jobs in the manufacturing industry, these individuals do not have the skills, experience, or desire to work in a factory.
This mismatch between the available workforce in the US and the skills needed means that US manufacturers of many products, including furniture, electronic products, electrical equipment, and appliances, are struggling to keep up with demand, placing Mexico at the forefront of a rising nearshoring trend.
In addition to Mexico’s trained, available, and affordable labor force experienced in manufacturing work, companies are also looking towards the US’s southern neighbor to set up operations with the goal of decreasing dependence on China and creating more resilient supply chains. With numerous free trade agreements, Mexico also offers economic, fiscal, and logistics advantages for businesses looking to start up or expand their manufacturing operations.
There are five different business models companies can use to start up manufacturing services in Mexico. These include establishing a stand-alone operation, finding a joint venture partnership, acquiring an existing operating, contract manufacturing, or partnering with a shelter services provider. For most manufacturers, especially those that have not worked in Mexico before and are looking to begin operating in as few as nine weeks, the shelter services program is by far the most advantageous option.
In essence, shelter services in Mexico is an all-inclusive package that allows companies to focus on their core business of manufacturing and distribution while the shelter company takes care of all day-to-day administrative and legal matters that will ensure its success in Mexico. Partnering with a shelter company takes all the uncertainty and risk out of expanding into a new country. It is an excellent option for businesses operating in the US to avoid lost profits caused by labor shortages and diversify their supply chain and operations.
If your company is having difficulties managing a complicated labor market in the US, looking into starting up operations in Mexico is a logical choice. Nearshore manufacturing under a shelter modality ensures international companies can take advantage of all the benefits this offers, especially considering the recent USMCA trade agreement and the cash flow and duty savings available under the IMMEX program.
By Isaías Rivera | Mkt & Business Development Director | American Industries Group®
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