US Manufacturing in Mexico: A Strategic Approach to Nearshoring

Published 05/15/2024

The nearshoring wave brought about by the expansion of US manufacturing into Mexico marks a significant shift in North America's economic landscape. It highlights the substantial benefits of cross-border trade relationships established by the North American Free Trade Agreement (NAFTA) in 1994 and its successor, the United States-Mexico-Canada Agreement (USMCA) in 2020 and underscores the interdependence and strong economic ties between the three countries.

Driven by geopolitical shifts and supply chain disruptions in recent years, US companies are increasingly reaffirming Mexico is not just a neighbor but a vital partner in their manufacturing strategies. The significant rise in foreign direct investment (FDI) in Mexico's manufacturing sector, with the United States contributing $165 billion from January 1999 to December 2023, as reported by Mexico’s Secretariat of the Economy, clearly demonstrates this trend.

This article discusses the considerations US manufacturers weigh when establishing operations in Mexico and outlines the advantages offered by Mexico's workforce, geographical proximity, and longstanding economic ties with the United States. It includes examples of companies that have successfully transitioned their operations to Mexico and offers practical advice for those contemplating a similar move.

Maximizing Operational Efficiency through US-Mexico Economic Ties

foreign direct investment

Mexico's proximity to the United States, robust economic ties, and favorable trade agreements make it an ideal destination for US companies considering nearshoring. This geographical advantage facilitates more agile supply chains and reduces transportation and logistics costs, enhancing operational efficiencies and responsiveness to market changes, among other benefits.

Foreign Direct Investment (FDI) into Mexico offers significant advantages, such as access to a cost-effective labor market and proximity to the world’s largest consumer market. Numerous US companies have successfully relocated parts of their operations to Mexico to improve supply chain resilience, resulting in a shift in recent years from offshoring to nearshoring.

One example of a company that joined the nearshoring boom in Mexico is Metal Finishing Co., which initially relocated to Mexico to support its main client, Beechcraft, and expanded to serve a broader range of clients in the aviation and general industries. With the support of American Industries, Metal Finishing Co. overcame initial operational and bureaucratic hurdles, including taking care of hiring management, obtaining operational permits, ensuring legal compliance, and retaining employees. This allowed Metal Finishing Co. to focus on its core competencies, leading to the establishment of a world-class facility in Chihuahua with over 100 employees. The facility serves a diverse customer base and contributes significantly to the local economy and the aerospace industry.

The operational benefits Metal Finishing Co. experienced include lower labor costs and access to a skilled workforce, which brought innovative practices that enhanced operations back in the US. This synergy between their Mexican and US operations has fostered bilateral business growth and reinforced the advantages of operating in Mexico.

Nearshoring in Mexico: A Competitive Edge

nearshore services

Mexico's proximity to the world’s largest consumer market and economic agreements have positioned it as a premier nearshoring destination for US manufacturers seeking to streamline their operations. Nearshoring services in Mexico extend beyond just manufacturing; they include logistical support, supply chain optimization, and enhanced market access, all crucial for maintaining competitive advantages in global markets.

The number and long history of US companies in Mexico highlights the country's capability to integrate international businesses into its market. Notable examples include General Motors, Curtiss-Wright, Honeywell, Metal Finishing Co., and Performance Designs. These companies represent diverse industries—from automotive to aerospace and electronics—all thriving due to Mexico’s supportive business environment and skilled workforce.

The growing number of American factories in Mexico is supported by substantial foreign direct investment. In 2023 alone, the United States directed $13.6 billion in FDI to Mexico. This financial influx underscores US investors' deep trust and commitment to Mexico's manufacturing capabilities, further facilitated by the country's ability to foster international cooperation and economic growth across its critical industrial sectors.

5 Steps to Successfully Starting a Business in Mexico

Setting up manufacturing operations in Mexico offers substantial benefits for U.S. companies looking to nearshore. To maximize efficiency and ensure sustainability in Mexico's promising market, follow these five essential steps:

  1. Market Research and Site Selection:

Start with thorough market research to understand Mexico's economic landscape, industry standards, and competitive environment. Select a location that aligns with logistical advantages, labor availability, and cost efficiencies. A structured site selection process ensures that the location meets your operational needs.

  1. Legal Entity and Compliance:

Establish a legal presence in Mexico by choosing a legal entity framework that suits your needs. Work with American Industries under its Shelter Program for a quick start-up. This program handles all administrative and legal functions, allowing you to focus on core business activities.

  1. Operational Setup and Human Resources:

Implement operational protocols and processes that comply with local regulations. Set up efficient production lines and quality control measures. Additionally, manage a productive workforce through comprehensive HR services such as recruitment, payroll, and employee retention programs, supported by appropriate salary and benefits administration.

  1. Customs, Import/Export, and Supply Chain Optimization:

Enhance your supply chain by managing logistics and compliance efficiently. American Industries can ensure you make the most of programs like IMMEX to facilitate duty-free import of materials, minimize import duties, and ensure compliance with regulations. These strategies support scalable and sustainable growth.

  1. Ongoing Support and Risk Management:

Maintain operational efficiency and ensure long-term success by engaging continuous consulting services in labor, customs, and fiscal matters. Support for expatriates and strong local networking also help enhance your business operations and integration into the community.

By prioritizing these approaches, your company can successfully navigate the learning curve of starting a business in Mexico, leveraging the workforce in Mexico to establish a robust manufacturing presence. This positions your business well to capitalize on the benefits of nearshoring in Mexico, enhancing your competitive edge in the global market.

If you're looking to start your business in Mexico swiftly and without any complications, contact us today to take the first step by receiving our complimentary business case analysis. We are the ideal partner to help you capitalize on these benefits and participate in the thriving economic synergy that defines U.S.-Mexican industrial collaboration.

American Industries Group®

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