Recent news that Mexico is once again America’s #1 trade partner should not have come as a surprise to those following trends in supply chain management; indeed, it was only a matter of time. The shift away from China and towards Mexico happened, as with many things, slowly and then all at once—hastened by concerns over the fragility of supply chains that were brought to light during the pandemic—and has now officially reached a tipping point.
The concept of nearshoring, where a business relocates their operations to neighbouring countries, capitalizing on cost savings, proximity, and shared cultural affinities, has become quite trendy. But the concept is not new; there have been waves of nearshoring since the 1970’s. And Mexico, today as much as ever, stands out as the prime nearshoring choice for US-based businesses.
And it is easy to see why. Mexico offers significant opportunities that can transform businesses’ operations and enhance their competitive advantage. The close proximity, shared border, and robust trade relations between Mexico and the United States create an environment conducive to seamless supply chains, reduced lead times, and enhanced market access. Businesses are learning how to leverage this thriving bilateral trade relationship, and to take advantage of the unique opportunity to reap the benefits of cost efficiencies and a skilled talent pool, and at the same time tap into a dynamic (export) market.
Success is not a guarantee…
While the benefits of nearshoring are numerous, this does not mean that results are guaranteed or that the process is seamless. Navigating cultural differences, addressing legal and regulatory considerations, managing infrastructure and connectivity, and overcoming language barriers are just a few of the very real challenges that organizations will need to overcome if they want to be successful.
Mexico has a world-class network of suppliers, but you need to be rigorous in your application of strategic sourcing strategies, and make sure they are the right match for your product, your logistics network, and ultimately your clients.
While everyone is familiar with the IMMEX program and the Northern (and more recently Southern) border region incentives, there are also a host of incentives given by local governments, which are much less publicized. Ignoring these, while it probably won’t make or break your nearshoring exercise, amounts essentially to leaving money on the table.
How to get the most out of nearshoring
Whether your company is just getting on board with nearshoring, or looking to improve the operational effectiveness of previous nearshoring exercises, here are some of the factors that will ensure you will be able to achieve maximum value:
– There is simply no substitute for local, boots-on-the-ground knowledge. To achieve maximum benefit, you will need to successfully navigate cultural, legal, and operational challenges. You need to put the right team in place, and consider supplementing with specialist resources that have helped other companies navigate the same challenges. They can leverage their network of local partners and resources on your behalf.
– Remember the old real estate maxim—location, location location! More time and resources spent choosing the right location will pay dividends later. You need to carefully weigh many factors: supply base, logistics network and costs, government incentives, just to name a few, and also take into account that the landscape is constantly evolving.
– Every organization is unique; be wary of one-size-fits-all approaches. Take the time to plan and develop a tailored nearshoring strategy that will be aligned with your specific goals, industry requirements, and organizational culture. This may seem obvious, but I have seen this mistake happen too often, and I would be remiss if I didn’t mention it.
– Be clear about your goals and priorities. Are you primarily focused on cost savings (now that labor in Mexico is cheaper than in China, and freight costs are unpredictable to say the least), surety of supply, reduced lead times, or, like most companies, a combination of those three & more?
– To effectively communicate and ultimately achieve those goals, good governance that includes all stakeholders and regular progress updates is essential. This seems obvious as well, but many companies fail here, as they don’t have a structure in place for such a specific one-off project. If you notice direction is lacking or enthusiasm is faltering, consider hiring an outside resource- it can make all the difference when it comes to keeping the stakeholders informed and holding them accountable.
Nearshoring in Mexico presents a compelling opportunity for organizations seeking cost efficiencies, skilled talent, and proximity to key markets. Although challenges exist, the potential rewards are immense.
Thoughts? Comments? Questions? – Please let me know in the comments, or don’t hesitate to reach out to me personally Jorge.milke@enablingprocurement.com. Nearshoring, Offshoring, and Procurement in general are are topics I’m passionate about, and I’m always willing to engage and share.
