Getting Ahead in 2023 & The Role of Mexico Manufacturing

An increasing number of U.S. and other foreign manufacturers are considering Mexico as part of their strategy to expand production in the new year. This continuous shift has made it more challenging to secure industrial space and qualified talent to support these endeavors. Companies must start moving quickly to secure a competitive space in the market.

As of November 2022, 87% of Mexico’s imports come from manufactured products. And, in 2023, nearshoring will continue to boost Mexico’s economy as new foreign direct investments are made. In turn, manufacturing in Mexico will help U.S. companies combat rising manufacturing costs and the struggle to find the skilled labor necessary for production.

This is one of many reasons why U.S. manufacturers have decided to reshore production from China to Mexico over the past several years. The proximity between the U.S. and Mexico carries multiple advantages that China simply can’t compete with.

To get ahead in 2023 means Mexico manufacturing will play an even larger role in U.S. production.

Here are areas where companies benefit most.

Reduced Transportation Costs and Distance to Market

Product volume is increasing, which subsequently leads to an increase in transportation costs as well. Cargo shipments from China cost thousands of dollars and take several weeks for delivery. Whereas, when manufacturing in Mexico, shipments can often occur same-day with significant logistical cost savings.

This is advantageous for American companies shipping heavy-duty machinery, heavy and/or bulky products, and large, customized orders. For instance, metal fabrication is a sector where it makes more sense to nearshore to Mexico versus offshoring to China. This industry may include companies that produce heavy automotive trailers which are cumbersome and costly to ship when produced overseas.

Another example is a company manufacturing metal products that require custom painting, welding, and specialized features. It requires heavily skilled technical workers who can accommodate their complex manufacturing needs. The labor force in China is more accustomed to high-volume, low-mix types of products. It can be difficult to source employees with the right skill set and experience to complete the project. Whereas, Mexico has a long-held commitment to the manufacturing industry and training workers for various roles.

Qualified and Available Technical Labor

In addition to Mexico’s industrial talent compared to China, projections about the decline in U.S. industrial labor are also causing manufacturers to consider nearshoring. As of October 2022, there were 746,000 monthly manufacturing job openings in the U.S. Whether it’s because workers no longer want to apply for these types of roles or do not have the adequate skills necessary, it continues to widen the gap in workforce availability.

Tax Savings Through the IMMEX Program

Reduced transportation and labor costs are two of the main advantages of Mexico manufacturing. However, as U.S. and other foreign manufacturers expand their portfolios, they also benefit from Mexico’s IMMEX program. The IMMEX program exempts foreign manufacturers from the 16% VAT tax applied on all imported tools, goods, and machinery needed for production; and those who work with a shelter company can reap this tax benefit right away.

Shelter Service Benefits

Many times companies may be ready to expand but are unsure of everything they’ll need to operate in a foreign country. Working with a shelter company also offers a unique competitive advantage. A shelter handles all administrative tasks and responsibilities necessary to launch production which frees up time for leaders to focus on their daily operations.

A shelter helps to reduce the learning curve and ensure everything complies in accordance with Mexican law. It also minimizes risk and liability while reducing operational costs. Startup time can begin in as little as three to four months compared to six to seven months when setting up a new legal entity. However, if all factors align and manufacturers are quick with their decision-making, it can take as little as eight to ten weeks.

The Future of Manufacturing Is in Mexico

Though China was once the premier trade partner for the U.S., times have changed. China is no longer the most convenient or cost-effective for complex manufacturing needs. Furthermore, supply chain shutdowns during the pandemic and the after-effects of the U.S./China trade war have hindered its value and reliability.

These issues, in addition to intellectual property (IP) disputes, have caused many U.S. manufacturers to grow wary when outsourcing production to China. On the other hand, the USMCA has secured trade relations between the U.S., Mexico, and

Canada with special regulations for IP protection, specifically.

When deciding the most optimal strategy, a shelter company such as IVEMSA can provide options based on your specific project needs. We align with the professional values and business culture of our partnerships and take pride in the experience we provide.

As you explore manufacturing options for the year ahead, let us customize a solution for you. Contact our team of experts today.

Sources:

https://tradingeconomics.com/mexico/imports

https://www.statista.com/statistics/872834/monthly-job-openings-in-the-united-states-by-industry/