How Can SMEs Thrive Sustainably in the Reshoring Era?

Today, reshoring is a key element in the competitiveness of Mexico and Central America. This model, which means the relocation of manufacturing services, processes, and operations to geographical locations with greater logistical efficiency, emerged strongly after the pandemic, when the prevailing offshoring scheme was exposed to previously unseen vulnerabilities in supply chains, slowing down or even stopping the flow of raw materials and final products, and therefore disrupting manufacturing globally, according to a World Economic Forum report.

Today, bottlenecks in global supply chains provide a huge business and growth opportunity for all types of organizations. The world has focused on our region as an opportunity to redistribute production chains. The advantages are clear:, on the one hand, the country's trade agreements open the door to more than 50 markets, including the largest worldwide; likewise, the features of the Mexican workforce and infrastructure allow it to maintain a continuous operation and overcome obstacles such as shortages of supplies from Asia, delays in shipments, and operational interruptions.

The trend of this model is not only for large companies. Small and medium-sized enterprises (SMEs), which represent a key figure in the Mexican economy by contributing more than 50% to the national GDP and generating 70% of the country's jobs, are also part of the ecosystem that can take advantage of this new way of participating in global production networks. 

How to Prepare
Although SMEs may be the business segment with the longest path to prepare for reshoring, taking advantage of the momentum will undoubtedly bring significant benefits to this sector. Among these are 1) efficiency and flexibility, since the proximity between the client and its suppliers will facilitate project management; 2) lower costs, considering that travel and other expenses associated with subcontracting in distant countries are avoided, and 3) quality control, since it is easier for the company to manage the outsourced services, thanks to the nearness of the suppliers, therefore contributing to 4) greater customer satisfaction.

However, to make the promise of reshoring a reality and consequently catapult their businesses, SMEs will likely need to make some adjustments. I believe that there are two essential pillars on which they should base their strategy: 

1. Digital transformation + sustainability
To begin with, the dynamics with which the business world works today and the digitalization of processes are key elements. 

In Latin America, digital transformation is an engine that drives social development by increasing the efficiency and competitiveness of the economy of the countries that comprise it,  according to a recent report by Telefónica Hispanoamérica that analyzed the challenges, opportunities, and advances of digital transformation of various countries in the region, including Mexico. As part of its research, the document cites the estimate of the Inter-American Association of Telecommunications Companies (ASIET) in the sense that, by increasing the digitalization index by 1%, growth of 0.3% of GDP can be generated through increased productivity. This shows how important it is that we continue to advance in digitalization.

For Mexican SMEs that are planning to jump on the bandwagon of this model, digitalizing will be essential. By basing their operations on digital technologies, they lay the foundations for better information management, facilitating online collaboration and mobility, automating processes, increasing their operational efficiency, enabling more accurate and agile data analytics, and much more.

However, digital transformation implies a change in culture and mentality. Inspiration consists of optimizing the ability to innovate without neglecting the need to maintain sustainable practices and making rational use of resources. 

Technology leads to sustainability by enabling the combination of the real and digital worlds. Increasingly, it is proven that sustainable digitalization brings the greatest benefits, both to the business and to the planet. In this regard, at Siemens, we are proud to say that 90% of our business enables customers to make a positive impact on their sustainability levels.

2. Technology Trends + Human Talent
Becoming suppliers of reshoring corporate organizations will require SMEs to be at the expected technological level. We can talk about cloud infrastructure, for the management of production data in real time, among many other functionalities, and AI-based software, to streamline the supply chain and detect errors or shrinkage in time, but this is only the beginning.

To match the requirements of their customers, businesses considered within reshoring supply chains may require the application of more advanced technologies, such as digital twins, which have proven to be extremely useful in industries such as automotive, manufacturing, energy, or aerospace. 

These are virtual replicas of physical objects or processes (including, for example, complex interactions of mechanical or electrical factors) that make it easy for users to test and execute any number of what-if scenarios in design processes, production lines, plant configurations in a safe environment, among others, without interrupting the operation and avoiding the costly consumption of natural resources associated with real-world testing.

And this is where the issue of human talent comes in. Could you imagine having to master disruptive technologies, such as the one described above, without having the right workforce? In other words, the truth is that the most innovative technologies are useless if companies lack committed and qualified human talent, prepared precisely to provide daily service with the quality, agility, and expertise that customers demand.

How are we doing in Mexico in terms of the adoption of digital technologies? According to the most recent Needed Education report, at the end of 2022, the digital development of organizations in general increased by 7% compared to the prior year. The digital skills in which leaders are most advanced, according to this analysis, are data-centric decision-making (placing at the top of the list with 30% growth versus 2021) and customer-centric strategies (presenting the highest degree of maturity, with growth of 5%). However, there is still much to be done: according to the same document, the development of skills in process automation and artificial intelligence, which are essential in the current business era and in the face of “glocalization,” is still pending. 

The case of SMEs is not more promising. The 2024 SME Digitalization Study by Concanaco-Servytur indicates that 39% of these businesses have not created any transformation plan, 35% do not use management platforms, 20% do not use digital platforms to know the customer, while only 15% have an effective digital strategy.

It is a fact that a wave of new commercial agreements with reshoring is coming, but it is also true that, for the most part, SMEs still have a long way to go to live up to what this model implies. Are you ready to take the necessary steps to take advantage of the opportunity? 

At Siemens, we are ready to accompany you!