+1 (520) 780-6269 investment@latamfdi.com

The benefits of nearshoring in Mexico in 2023

by | Mar 18, 2023

The issue is not exclusive to Mexico, but after the Covid-19 pandemic, the word “nearshoring” began to monopolize the pages of trade industry and business publications. In forums, summits, or different events where the economy was discussed, the main conversation was the reconfiguration of supply chains globally and how these companies saw nearshoring in Mexico as a manufacturing platform to export to the largest market in the world: the United States.

Three years after the “boom” of the nearshoring concept, the benefits for the Mexican economy are tangible, and the future looks promising, according to experts; however, much work must be done.

The latest Nearshoring Tracker report by Credit Suisse shows the arrival of foreign investments related to the phenomenon of nearshoring Mexico. For example, it informed that during 2022, 102 investment announcements were made that committed investments valuing 18.1 billion dollars.

Benefits for 2023 of nearshoring in Mexico

To understand what visible benefits nearshoring will bring to Mexico this year, it was necessary to consult experts in the field, such as Dr. Luz María de la Mora, former Undersecretary of Foreign Trade of the Ministry of Economy. She was a key player in approaching industrialists to make manufacturing investments in Mexico.

For 2023, the expert sees greater flows of Foreign Direct Investment (FDI) and the development of clusters of industries participating in supply chains, such as automotive, auto parts, and electric batteries. In addition to this, she sees the consolidation and strengthening of the country’s capacity through more nearshoring in Mexico.

“The strengthening of regional supply chains, the creation of quality and well-paid jobs in companies that participate in these supply chains, will also be elements that we will see in Mexico,” said de la Mora.

For his part, Jorge Molina Larrondo, a foreign trade consultant, points out that the benefits depend on the type of foreign investment that is attracted and, to a large extent, on the legal certainty that the Mexican government offers to foreign capital. In any case, and even with little legal certainty, in addition to industries such as automotive, aerospace, medical device, and general manufacturing, he foresees the arrival of investment in things like consumer products and food and food processing plants. In addition, he anticipates that many projects that do not entail large investments will benefit from nearshoring in Mexico. He also sees the transfer of state-of-the-art technology and the creation of many long-term jobs.

Some tangible benefits are already beginning to be seen, such as the growth in the capacity of industrial parks. These facilities are increasing to expand nearshoring in Mexico for companies already established in the country and house new companies seeking to enter Mexico for the first time. This translates into the generation of sources of formal employment, maintains Samantha Atayde Arellano, partner at the firm RRH Consultores.

She argues that if Mexico knows how to take advantage of the context in which it finds itself, the position it occupies as a commercial partner of the United States, and its network of treaties, nearshoring in Mexico is presented as another tool to attract new investment or reinvestments in the country.

The appeal of nearshoring in Mexico in 2023

In her experience as a former Undersecretary of Foreign Trade, Luz Maria de la Mora believes that the sector that will benefit the most will be the automotive sector since it is transitioning towards manufacturing electric vehicles. It has announced important investments in recent months, such as the case of the General Motors complex in Ramos Arizpe. This facility will become its fifth plant in the country and will produce electric vehicles.

He also sees growing interest in producing electric batteries and their components and a significant investment opportunity in the semiconductor and electronic component sector to complement new investments in semiconductor manufacturing (“fabs”) in the United States.

“In the US, at least three large fabs are being built —TSMC and Intel, in Arizona, and Samsung, in Texas— which can have multiplier effects for Mexico’s participation in some segments of the industry’s supply chain,” he says.

In the same way, Atayde Arellano is confident that the automotive sector will top the list of the most benefited sectors since it is a strategic sector for the economies of the United States – Mexico – Canada (USMCA) region. It is followed by sectors such as aerospace, electrical and electronic, pharmaceutical and medical device, transportation, storage, and agro-industrial industries, as well as industries that use nearshoring in Mexico to focus on the development of software and other technologies.

Adriana García, coordinator of economic analysis at the Mexican think tank Cómo Vamos, comments that the immediate opportunity for nearshoring in Mexico in 2023 lies in 50 import categories that it shares with China. As a result, she feels that Mexico can occupy a greater proportion of the market share. These categories are in electronics, machinery, furniture, and auto parts manufacturing.

“This could be taken advantage of and translate into more investment and quality jobs for Mexico in the short term. A second opportunity will be to explore industries where we don’t have knowledge of and experience with, which would imply a larger investment,” she asserted

Mexico’s task

Carlos Véjar, International Trade and Arbitration lawyer at the Holland & Knight consultancy, assures that Mexico’s task to benefit from nearshoring is to get involved in a coordinated manner with the private sector to promote investment attraction through greater political and economic certainty for the export sector. This is in addition to facilitating the increase of new spaces to build industrial parks or expand existing ones to create spaces for more nearshoring in Mexico.

“Among the challenges that Mexico faces is to improve the supply and costs of renewable energy and water supply; solve the difficulties of the supply chain that arise, improve times in obtaining programs for exports (IMMEX), and provide greater security in the production regions and commercial routes,” says Véjar.

Along the same lines, Molina Larrondo believes the Mexican government wants to attract capital-intensive production. Doing so implies implementing state-of-the-art technology and creating many jobs in the long term (that is, producing products in the early stages of their life cycle). The Mexican government must change its discourse of constantly attacking the private sector. It must also enforce its intellectual property protection regime and reduce piracy.

“Everything depends on the current government and its attitude concerning nearshoring in Mexico. The United States is promoting the investment of its companies in countries that it considers “friendly” and “trustworthy,” which has been called “friend-shoring.” “For this reason, the attitude of the Mexican government is key to attracting new companies to the country,” he says.

On the other hand, the expert emphasizes that legal certainty must be generated by respecting what the country’s trade treaties and agreements and the laws that govern the country indicate. He also notes that the current government of Mexico must adopt a more positive attitude toward the private sector.

 He stated the importance of “Enforcing and respecting the laws for the protection of intellectual property, reducing the cost of creating new jobs, and improving security.”

Regarding investment issues, the list of pending subjects that Mexico has is long, explains De la Mora, among which is investing in infrastructure and logistics, particularly in ports, highways, railways, airports, telecommunications, and 5G. In addition, investing in clean energy generation will also be important, as companies need to meet new requirements and emission reduction goals in addition to their growing energy capacity needs.

We can add the investment in human resource development since more engineers and technicians specialized in advanced manufacturing will be needed. Also important is water availability for industrial use and human consumption. Most notably, it is of primary importance to guarantee the rule of law that gives certainty to investments resulting from nearshoring in Mexico.

Adriana García sums it up best: Legal certainty is needed for Mexico to take advantage of the benefits of nearshoring in terms of greater investment and generation of quality jobs. This is especially true in the energy sector since the country must provide sufficient and necessary energy required by the country’s growing industrial base.

For information on starting a nearshore manufacturing facility in Mexico, contact LATAM FDI.

Contact LATAM FDI to discuss your foreign direct investment plans in Latin America.

Monterrey Aerocluster companies are at 90% capacity due to nearshoring

The Monterrey Aerocluster has demonstrated resilience and adaptability in response to the nearshoring trend, attracting significant foreign direct investment to Nuevo León.

The new free zone regime in Ecuador

The reintroduction of the free zone regime in Ecuador represents a significant strategic move aimed at boosting international trade, generating employment, and attracting national and foreign investments.

The relationship between Mercosur and China will be a priority

Omar Paganini, Minister of Foreign Affairs of Uruguay, reported that revitalizing dialogue with China will be one of the country’s main priorities once it assumes the pro tempore presidency of the South American Common Market (Mercosur) in July

A chat with the Paraguayan ambassador to the United States: Antonio Dos Santos

Today, we are honored to have the Paraguayan ambassador to the United States, Antonio dos Santos, with us. His name is Antonio dos Santos.

Growth engines that power the Panamanian economy

With a strategic geographical location, the Central American nation has the potential to develop different sectors that improve the Panamanian economy.

Italian firm Mapei has announced investments in Colombia  of US$11 million in 2024

Italian company Mapei’s recent strategic investment in Colombia is not just a financial move but a significant step in the bilateral economic relationship between Italy and the South American nation.

Special economic zones in Peru (SEZs)

Special Economic Zones in Peru (SEZs), known as “Zonas Económicas Especiales” (ZEE) in Spanish, are designated areas that offer economic incentives and benefits to attract investment, promote exports, and spur regional development.

The reindustrialization of Brazil through the Nova Indústria Brasil plan

The Action Plan for Reindustrialization, known as the Nova Indústria Brasil plan (NIB), is not just a step but a significant leap in Brazil’s industrial development.

Subscribe To Our Newsletter

Join our mailing list to receive the latest news and updates from our LATAM FDI team.

You have Successfully Subscribed!