The Future of Nearshoring in Mexico

Nearshoring

The Future of Nearshoring in Mexico

10 May, 2024• Logistics, Nearshoring

The landscape of nearshoring in Mexico is at a critical juncture, influenced by two momentous political events: the 2024 Mexican presidential elections and the 2024 U.S. presidential elections. The outcome of these elections could have a significant impact on Mexico’s attractiveness as a destination for the relocation of production operations.

A Complex Scenario of Variables:

Analyzing the future of nearshoring in Mexico involves understanding the complex interplay of variables emanating from both electoral processes.

On the one hand, the elections in Mexico will define the government’s direction in terms of public policies that directly impact nearshoring. A government favorable to foreign investment, modern infrastructure, and streamlined customs processes could generate a climate of stability and confidence, attracting companies interested in relocating.

On the other hand, the outcome of the U.S. elections will also play a fundamental role. A U.S. government that promotes free trade, regulatory collaboration, and reduced migration tensions could create a favorable environment for nearshoring in Mexico. However, an opposite scenario, with protectionist policies, increased migration tensions, or a weakened U.S. dollar, could generate uncertainty and discourage foreign investment.

Beyond the Election Results:

It is important to note that the future of nearshoring in Mexico is not solely dependent on the election results. The country’s competitiveness as a nearshoring destination will also be determined by factors such as:

  • Infrastructure quality: Efficient roads, ports, airports, and telecommunications networks are essential for the logistics and competitiveness of the manufacturing sector.
  • Human capital: A qualified, adaptable workforce with the skills needed for the industries seeking to relocate is a key attraction factor.
  • Regulatory framework: A transparent, predictable legal framework that facilitates investment and trade is essential to build investor confidence.
  • Collaboration between the public and private sectors: Close collaboration between both sectors will be crucial to identify opportunities, design strategies, and overcome obstacles to the development of nearshoring.

Ultimately, the future of nearshoring in Mexico presents a complex and challenging landscape, but also one full of opportunities. The country’s ability to navigate uncertainty, strengthen its competitiveness, and seize the opportunities that arise from the political scenarios will be crucial to consolidate itself as an attractive destination for the relocation of production operations and economic growth.

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Mexico’s IP Advantage

24 April, 2024• Economy, Nearshoring

The relocation of investment flows, known as “nearshoring,” presents an opportunity for Mexico to boost investments in high-value-added technologies, ranging from cloud computing to artificial intelligence and Web3 solutions. However, to fully harness this potential, Mexico must strengthen its IP framework and create an innovation-friendly environment.

The Role of Intellectual Property:

IP plays a crucial role in the nearshoring process, as it provides legal protection for innovative technologies and know-how. A robust IP framework can attract foreign investment and encourage technology transfer, promoting the development of a local technology sector.

Mexico’s Potential:

Mexico is well-positioned to capitalize on the nearshoring trend due to its proximity to the United States, a strong manufacturing base, and a growing pool of skilled talent. However, to fully harness this potential, Mexico must strengthen its IP framework and create an innovation-friendly environment.

Recommendations for Mexico:

To consolidate an attractive innovation ecosystem for technology investors, Mexico should:

  • Update its IP regulations: This includes modernizing copyright, patent, and trademark laws to align with international standards and best practices.
  • Promote coordination among IP institutions: Strengthen collaboration between entities responsible for promoting and protecting IP rights to ensure efficient and effective enforcement.
  • Foster dialogue between the public and private sectors: Establish regular channels of communication to discuss IP-related issues and challenges, and develop joint solutions that benefit all stakeholders.
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Guanajuato’s Footwear Industry in the Era of Nearshoring

12 March, 2024• Economy, Nearshoring

In recent years, the global trade landscape has undergone significant changes, and amidst this transformation, the state of Guanajuato, recognized as a leader in footwear production in Mexico, emerges as a strong contender to capitalize on the nearshoring phenomenon. According to Héctor Salgado Banda, Secretary of Finance, Investment, and Administration of the state, Guanajuato is ideally positioned to benefit from this trend.

One data point that highlights this potential is the exponential growth in exports of Guanajuato footwear. Over a little more than a decade, these have risen from around 280 million dollars in 2007 to almost 1 billion dollars by the end of 2023. This notable increase, explained by the state official, reflects the vigor and adaptability of the local industry in the face of global market challenges.

Mauricio Blas Battaglia Velázquez, president of the Chamber of the Footwear Industry of Guanajuato (CICEG), underscores the importance of leveraging nearshoring in a competitive environment where China remains a dominant player. He emphasizes the need for innovation and adding value to products to meet the demands of an increasingly discerning consumer.

With over 70% of total footwear production in Mexico concentrated in Guanajuato, with León leading the way, the industry has contributed more than 53 billion pesos over the last 15 years, according to data provided by Battaglia Velázquez. This leadership has prompted the state government to collaborate with industrial chambers to implement initiatives aimed at enhancing the sector’s international competitiveness.

These initiatives include programs to promote innovation and technological development, as well as access to credits that support companies, which represent a crucial source of employment in the region, with around 6,000 sector companies. However, Battaglia Velázquez also calls for corporate social responsibility, urging companies to prioritize the well-being of their workers and contribute to social development and economic mobility in the communities where they operate.

However, despite these achievements and efforts, the footwear industry in Guanajuato faces considerable challenges, especially related to unfair competition. The massive influx of undervalued goods and irregular products, mainly from China, has created a challenging environment for local manufacturers. According to José Antonio Abugaber Andoni, national president of the Confederation of Industrial Chambers (Concamin), approximately 40% of footwear imports into Mexico are made under conditions of alleged undervaluation.

This issue not only affects the economic stability of the sector but is also reflected in Mexico’s trade deficit with China, which reached 95.575 billion dollars in 2023, according to data from the Ministry of Economy.

The sustained growth of footwear exports in Guanajuato and its potential to benefit from nearshoring are encouraging signs for the local industry. However, it faces significant challenges that require a collaborative approach between the private sector and the government to ensure its continued and sustainable growth in an increasingly competitive and globalized market.

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Nearshoring: Challenges and Opportunities for Mexico in 2024

5 March, 2024• Economy, Nearshoring

In recent years, Mexico has emerged as a prime destination for companies looking to relocate their production operations closer to their target markets, in a phenomenon known as nearshoring. This strategy, which involves outsourcing services to geographically nearby countries, has posed a series of challenges and opportunities for the country in 2024, according to a study conducted by experts from Tec de Monterrey.

What is Nearshoring?

Nearshoring is a business strategy that involves relocating some or all commercial or information technology (IT) operations to a provider located in a geographically nearby country. In the current context, this has led to the relocation of production centers from places like China to Mexico, due to the proximity to the United States, one of the main consumer markets worldwide.

Challenges of Nearshoring in Mexico

According to experts, Mexico faces several challenges to fully capitalize on the nearshoring phenomenon in 2024:

1. Integration of value chains: Integrating the states in the central and southern regions with those in the north is crucial for optimizing value chains. Promoting the participation of small and medium-sized enterprises (SMEs) in these chains, along with large companies, is necessary.

2. Investment in electrical infrastructure: Ensuring adequate electrical supply for companies interested in establishing themselves in Mexico is fundamental. Furthermore, a redefinition of the country’s energy strategy, with a focus on clean energy sources, is required.

3. Security: Improving public and business security is essential to attract foreign direct investment and ensure a conducive environment for economic growth.

4. Water scarcity: Water management is a significant challenge, especially in regions like Nuevo León. An industrial policy addressing this issue and making these regions attractive for investment is needed.

5. Talent development: Promoting skills and talent development is crucial to maintain competitiveness and ensure equitable participation in the benefits of nearshoring.

6. Pollution and mobility: Addressing issues such as pollution and traffic congestion is essential to improve quality of life and attract investments.

7. Increased technological investment: The implementation of digital technologies will be key to optimizing operations, especially in border areas such as customs.

8. Financing for SMEs: Small and medium-sized enterprises need access to financing and technical support to expand their operations and ensure product quality.

Opportunities of Nearshoring in Mexico

Despite the challenges, nearshoring also offers significant opportunities for Mexico in 2024:

1. Job creation: Increased foreign direct investment can translate into the creation of better-paying jobs in sectors such as automotive, electronics, and manufacturing in general.

2. Boost to STEAM careers: Nearshoring will demand talent in areas of science, technology, engineering, arts, and mathematics, providing opportunities for professionals and students in these fields.

3. Opportunities for tech entrepreneurs: Entrepreneurs can capitalize on the growth of nearshoring by providing cross-cutting, financial, logistical, and technological services.

Nearshoring represents both challenges and opportunities for Mexico in 2024. To fully capitalize on this phenomenon, the country must address pending challenges while capitalizing on the opportunities it offers, with a focus on value chain integration, talent development, and the promotion of innovation and technological investment.

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Mexico’s Industrial Success in 2023

6 February, 2024• Nearshoring

2023 marked a year of significant growth in Mexico. In this article, we’ll break down the 3.0% growth in industrial production, highlighting the stellar performance of construction and the exciting narrative of the automotive industry. Additionally, we’ll provide a glimpse into optimistic expectations for 2024.

An Overview of 2023

The past year saw a 3.0% increase in industrial production, led by a spectacular 19.3% growth in construction. However, manufacturing took a slight dip, registering a -0.4%. What lies ahead? We anticipate a 3.8% growth in the industrial sector for 2024, surpassing the overall GDP growth of 2.6%.

October 2023, Behind the Numbers

In October, industrial production continued its upward trend of 3.0%, though at a more moderate pace. Construction shone with a 19.3% growth, while manufacturing took a breather with a -0.4%. But the real star was the automotive industry, boasting a 4.9% growth, driven by relocation and foreign investment.

Automotive Industry: Beyond Expectations

The automotive industry dominated in 2023 with nearly 3.78 million vehicles produced, establishing Mexico as the seventh-largest global producer. General Motors led with a 19.1%, followed by Nissan with 16.3%. A 14.1% growth and mid-term expectations indicate a bright future.

Exports and Local Market

Of the total production in 2023, an impressive 87.6% was for export. Mexico stands strong as the fourth-largest global exporter of vehicles. General Motors leads exports with 21.9%. On the local front, sales surprised with a 24.4% increase, thanks to employment, wages, and automotive credits. Good news for 2024-2025!

Sustained Industrial Momentum

With construction booming and the automotive industry leading the way, the outlook for 2024 looks exciting. Relocation and foreign investment are key. We are eager to see how these trends will continue to transform the Mexican economy in the coming years.

2023 was a year of industrial success, with construction and the automotive industry standing out. Our projections suggest that the industrial sector will remain a crucial driver for Mexico’s economic growth.

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Challenges and Uncertainties in the Red Sea Trade Route

30 January, 2024• Nearshoring

In the post-COVID scenario, where supply chains once operated with precision, we now find ourselves in a more unstable landscape, driven by conflicts between nations, especially in the Red Sea trade route. Approximately 10% of global maritime transportation is facing difficulties, with major shipping giants suspending routes due to maritime insecurity. This situation significantly impacts European companies that heavily depend on the Suez Canal route.

The Enigma in the Suez Canal

The Suez Canal, a vital link between the Mediterranean and the Red Sea, has become the epicenter of concerns for European supply chains. The suspension of these routes not only raises uncertainties about security in the Red Sea but also underscores the urgent need to rethink the resilience of these chains in adverse times.

Since the incident of the Evergreen cargo ship blockage in 2020, companies have begun to reconsider strategies, considering the option of bringing production closer to Europe to avoid logistical complications on extensive routes.

Impact on Maritime Transport Costs

The closure of routes has triggered a frantic search for alternatives, with one of them being the journey around the Cape of Good Hope in South Africa. Increasing the distance by 71%, this longer route implies not only higher costs but also significantly longer transit times. Companies opting for the Suez Canal route will face growing demand and, as a result, an escalation in maritime transport prices on the Asia-Europe route.

Shipping companies, in an attempt to counter insecurity, are implementing additional security measures, introducing what is now known as “Piracy Risk Surcharge”, Although necessary, this surcharge poses additional challenges for companies already grappling with tensions in their supply chains.

Key Points and Possible Resolutions

While shipping companies seek to safeguard their assets and increase prices, Suez Canal managers claim to have improved security. The lack of a coordinated response from the European Union and U.S. intervention in the region present uncertainties about possible solutions.

The U.S is working alongside other countries to form a naval force that protects ships in the Red Sea. Although their primary focus is to demonstrate their ability to maintain global security, this initiative could also provide relief to affected supply chains. Supply chain management faces a period of uncertainty. The instability in the Red Sea translates into increased prices in maritime transport, tighter deadlines, and logistical complexities for this year.

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Key Trends in Shipping in 2024

23 January, 2024• Logistics, Nearshoring

In a world of constant motion, the shipping and logistics sector faces a time of rapid transformation. Looking ahead to 2024, six trends emerge that completely reshape how we conceive and execute global shipments. From digitization to sustainability, these trends will not only overhaul the movement of products but also shape the future of the entire industry.

For 2024, these six pivotal trends will set the course:

1. Digitization: Both major shipping companies and small firms are embracing digital practices. This streamlines shipment tracking and reduces paper usage.

2. Economy: Despite positive signs, concerns persist about inflation and soaring fuel costs, impacting shipping expenses.

3. Sustainability: With increasingly frequent natural disasters, the industry is moving toward cleaner fuels and measures to mitigate environmental impact.

4. Last-Mile Delivery: Major retailers like Walmart now take more control over their final deliveries, seeking faster options, and even exploring autonomous trucks!

5. Supply Chain Resilience: Post-pandemic, businesses seek flexibility and smarter strategies to manage risks in their supply chains.

6. Cybersecurity: With the rise in digitization, safeguarding information becomes crucial. Expect substantial investments to protect data.

These trends signify a fundamental shift in the industry, where adaptability will be essential to tackle economic and environmental challenges, ensuring that shipping operations keep moving forward!

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How digitalization will impact aerospace

16 January, 2024• Nearshoring

In a joint initiative, the Mexican Federation of the Aerospace Industry (FEMIA) and 3D CAD, a leading software developer, are shining a spotlight on the critical necessity of digitizing processes within the aeronautical sector. The call for this digital evolution is not just a mere recommendation; it is a strategic imperative for companies looking to streamline operations and harness the potential of nearshoring to drive unprecedented growth.

During the insightful webinar, “Document Management for the Aerospace Industry,” organized by FEMIA, industry leaders underscored the invaluable lessons learned from the challenges posed by the COVID-19 pandemic. The consensus is clear: companies, irrespective of size, must embrace technological advancements to not only meet current standards but also to propel themselves forward in the dynamic landscape of the aeronautical sector.

Angel Diaz, Senior Industrial Processes Consultant for North America at 3D CAD, emphasized that the size of a company is no longer the sole determining factor of its success. Instead, it’s the adoption and effective utilization of cutting-edge software and technologies that will define a company’s ability to meet the ever-evolving demands of the sector.

FEMIA highlighted the current rebound in investment and production volumes within the aerospace industry. As the supply chain gears up for increased demand, there arises a unique opportunity for local and foreign companies to play a pivotal role in providing components, subassemblies, and services.

The specialist stressed the importance of optimizing collaborations, ensuring regulatory compliance, and establishing traceability of essential documents. These measures, he noted, are instrumental in expediting procedures and formalities, enabling companies to navigate the resurgence of the aerospace sector effectively.

According to data from the Ministry of Economy (SE), Foreign Direct Investment (FDI) in the aerospace sector reached $38.6 million during the second quarter of 2023. Year-to-date figures for Foreign Direct Investment in Aerospace Equipment Manufacturing totaled $156 million, with a significant portion attributed to reinvestment of profits.

This clarion call for digital transformation resonates as a guiding principle for aeronautical entities aiming not just to survive but to thrive in the post-pandemic era. As we witness the resurgence of the aerospace industry, companies must seize the opportunity to embrace digital innovation, fortifying their position in a rapidly evolving and globally competitive landscape.

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Mexico’s Aerospace Industry Gains Altitude with 2024 Census

9 January, 2024• Nearshoring

In a significant move, the Mexican Federation of the Aerospace Industry (Femia) announced the initiation of a comprehensive census in early 2024 to assess the expanding landscape of the country’s aerospace sector. Over the past two decades, Mexico has witnessed a remarkable surge in the presence of national firms within the aerospace industry, evolving from non-existence to constituting around 30% of the total industry by 2019.

Luis Lizcano, Femia’s Executive Director, attributes this growth to increased interest from major aircraft manufacturers in collaborating with Mexican companies. Emphasizing the positive impact, Lizcano stated, “We have seen this growth of Mexican companies because large aircraft manufacturers are looking for them more. This is good news for everyone.”

The upcoming census aims to update industry data, building on the 2019 survey that identified 370 companies in the aerospace sector, with 30% being of Mexican origin. Femia anticipates a notable increase in this figure, reflecting the sector’s ongoing expansion.

While the aerospace industry primarily focuses on producing and selling aircraft parts, with a significant market presence in the United States and Europe, Femia acknowledges the key states contributing to this growth: Baja California, Sonora, Chihuahua, Nuevo León, and Querétaro.

Despite facing challenges, such as the 31.8% decline in exports to approximately US$6.6 billion during the pandemic-hit 2020, the Mexican aerospace industry remains resilient. Femia remains optimistic about the future, recognizing the importance of continued efforts to boost the number of national companies and fortify Mexico’s position in the global aerospace arena.

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Mexico’s Automotive Industry Accelerates into 2024

2 January, 2024• Nearshoring

As we approach the end of 2023, Mexico’s automotive industry is steering towards a remarkable comeback, showcasing substantial growth in both domestic production and international exports. Overcoming the challenges of a recent crisis, the sector is set to conclude the year on a positive note, with promising statistics reflecting a significant upswing.

Positive Momentum in November:

According to recent figures released by the Mexican Automotive Industry Association (AMIA), November 2023 witnessed a robust performance in auto assembly and exports. The assembly of light vehicles in Mexico surged by an impressive 18.1%, with a total of 329,415 units produced, compared to the same month in the previous year.

Domestic car sales also fueled the industry’s success story, demonstrating a remarkable 31.9% increase in November. A total of 128,961 new cars were sold within Mexico, underscoring the resurgence of consumer confidence and demand in the automotive market.

Industry-wide Growth:

The upward trajectory in the automotive sector is not confined to specific players; rather, it’s a trend embraced by nearly all automotive companies operating in Mexico. While the majority experienced growth, a few witnessed contractions in their production during November. Notable among these were Toyota (-52.7%), Mercedes Benz (-12.7%), General Motors (-2.6%), and Audi (-1.8%).

Despite production setbacks, key players like US General Motors and Japanese automaker Toyota maintained solid growth in sales within Mexico, reinforcing the industry’s resilience and adaptability.

Export Dynamics:

In the realm of exports, the Mexican automotive industry continued to make strides on the global stage. However, a handful of companies experienced declines in car exports during November. Audi (-14.7%), KIA (-6.0%), Toyota (-5.0%), and Mercedes Benz (-3.1%) faced export challenges. Nevertheless, the overall export performance remained robust, reflecting the industry’s capacity to navigate complexities.

Optimistic Outlook for 2023:

As the automotive sector accelerates into the final month of the year, industry experts project that 2023 will culminate with the most promising results recorded in at least four years. Expectations are high for strong performances in production, foreign shipments, and domestic sales, marking a pivotal turnaround from the challenges faced in recent times.

The growth witnessed in Mexico’s automotive industry throughout 2023 is a testament to the sector’s resilience, adaptability, and determination to overcome adversity. As we eagerly await the conclusive results for December, the positive momentum experienced in November suggests that Mexico’s automotive industry is not just bouncing back – it’s accelerating toward a prosperous future.

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