Is Nearshoring to Mexico Worth the Effort?

Article Overview:

Nearshoring to Mexico has been an integral strategy for U.S. manufacturers, especially over the past several years. Advantages like industrial talent availability, steady supply chains, and Mexico shelter company support continue to drive new production investments and growth.

As manufacturers have sought strategies to reduce their supply chain risk and dependency on China for manufacturing, talk involving Mexico shelter manufacturing has increased.

To further the discussion, previous concerns with regards to tariff increases and technology breaches when manufacturing in China have also caused U.S. and other foreign manufacturers to seek alternatives.

As a result, many have either relocated their facilities to Mexico altogether or at least diversified their production to include it.

What does nearshoring entail?

Some Chinese companies are hoping to set up their own production in Mexico in an effort to avoid duties. The challenge is that, most of the time, companies are not looking to make significant transformations to their products.

As a result, and due to the limited integration of materials from North America, the product they intend to process in Mexico would still be considered a product of China for customs purposes. This means it would remain subject to duties when entering the U.S. market.

To make a Mexican manufacturing operation viable, substantial transformation or value-added manufacturing must be performed on the imported raw materials.

Nearshoring to Mexico involves setting up a facility to create products that will eventually be exported to the U.S. (or other chosen location).

For many U.S. manufacturers, in particular, this has been a cost-effective way to do business and expand production over the past several decades, thanks to Mexico’s convenient proximity, steady supply chain, and industrial labor availability.

What are the key advantages of nearshoring?

Nearshoring to Mexico is a strategy that has been successfully leveraged by multiple sectors in the manufacturing industry, including automotive, aerospace, medical device, and electronics.

The cost savings benefit is the main reason why manufacturers consider moving production to Mexico. However, other advantages include:

• Proximity to the U.S. audience
• Lower cost of industrial labor (compared to the U.S. and China)
• Talent availability
• Steady supply chain to support various sectors
• Multiple modes of transportation
• Strong manufacturing presence with established production hubs
• Open trade agreements, including the USMCA

How can I reduce risk when setting up a factory in Mexico?

When determining whether Mexico is the right place to set up production, advantages have to be weighed against the risks.

Fortunately, there is local expert support by partnering with Mexico shelter companies, which greatly minimizes risk and liability.

How do Mexico shelter companies help reduce risk for manufacturers?

Working with a shelter company is the safest way to do business since manufacturers do not need to establish their own legal entity.

Manufacturers have the advantage of working with industry experts who have the connections, expertise, and insight to guide their production launch and initiate a setup in as little as three to four months.

It also reduces costs, time, and hassle in obtaining permits, certifications, and handling all the other administrative tasks necessary to launch production.

Maximize Manufacturing Efforts with IVEMSA

Every manufacturing situation is different. Want to know if nearshoring to Mexico is worth the effort for your company?

Contact IVEMSA to discuss your options and consider a cost analysis to see if this route is the best fit.