During the past years manufacturing has changed completely, with the pandemic the companies started to rethink their manufacturing strategies. Consequently, they started to search for a reduction of costs, time, diversification and stability of supply chains and risk minimization.
The abovementioned led to nearshore manufacturing in Mexico as a more attractive approach.
What is Nearshore manufacturing?
Nearshoring means transferring your operations across national borders to business operations in another country that is in proximity, with a relatively small difference in time zone and reduced cultural differences. All in order to be more cost-effective and save more time.
Nearshore manufacturing in Mexico started to increase around 2015, when labor wages in China started to increase, this strategy continued in the following years and became more attractive due to the COVID-19 pandemic.
Due to supply chain shortages, delays, higher transportation costs, companies started to look for establishing operations closer to home, to minimize costs and risks.
Additionally, considering the increase of maquiladoras, a growing number of highly-skilled workers, 13 FTAs with over 40 different countries, Mexico has become an excellent option for nearshore manufacturing.
Altogether, Mexico has positioned itself as one of the main destinations for foreign investment when it comes to manufacturing. This is due to multiple factors such as low production costs, its strategic geographic location, economically active population, and government incentives such as the maquiladora program (IMMEX).
Benefits of Nearshoring
Shorter Supply Chain and Reduced Transportation Costs.
Basically, one of the main benefits of nearshoring is a reduction of shipment time for the finished goods to reach its destination. A faster and flexible shipment also comes along a reduction in freight costs.
Furthermore, through nearshoring, the company can reach supply chain stability, while avoiding big delays and higher risks in the arrival of materials that come from a long distance.
Also, Mexico counts with important industrial clusters and well established regional supply chains from the following important industries in Mexico: automotive, aerospace, medical devices, electronics, among others.
Improved Communication and Travel
When facilities operate in similar time zones, communication is easier. It also reduces response time, compared to a facility with a 12-hour difference, which avoids strains and delays.
Furthermore, by nearshoring, traveling becomes more simple, avoiding long distance flights, and being able to arrive at the facility faster and in a short notice.
Low cost of skilled labor
Additionally, the high availability of low costs qualified labor, continues to be one of the main advantages that manufacturers see when operating in Mexico. Labor costs a for manufacturing workers are significantly lower in Mexico than in the United States.
Access to the global market
Furthermore, Mexico is considered one of the countries with the most free trade agreements (FTAs) in the world, establishing itself as a trading partner with more than 50 countries, with agreements that reach Europe, South America, Asia and Africa. Therefore, due to the benefits this FTAs offer, companies abroad can have access to significant cost savings while manufacturing in Mexico.
Government Programs
There are several government programs that foreign companies can benefit from, which include tax exemptions such as the IMMEX Program.
The IMMEX Program together with the VAT and IEPS Certification allows Mexican manufacturers who export their products within a set period, to “temporarily” import materials and production assets without having to pay value added tax (VAT).
Is your company planning to establish manufacturing operations in Mexico?
If you are interested in nearshoring or have any questions regarding manufacturing in Mexico, contact us.
Mexcentrix is a shelter company that can help you start operations in as few as 30 business days. Through our shelter services your company can start operation in Mexico reducing legal risks and liability, with full compliance and maximizing cost savings.