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Analysis

Nearshoring Opportunities for the Mexican Health Industry

By Miriam Bello | Fri, 08/13/2021 - 15:38

Nearshoring has gained global relevance after the COVID-19 pandemic disrupted supply chain activity for several months. Even to date, supply chains keep working with several limitations compared to pre-pandemic dynamics. Within this context, finding new commercial partners and supply sources has become a necessity for essential industries that could not stop their activities despite the global logistic hurdles.

“It is necessary to attract productive chains to Mexico. Local companies are concerned about getting ahead in the face of purchasing processes with international companies that have not gone through the same regulations as companies in Mexico,” said Arturo de la Rosa, General Manager of AbbVie Mexico to MBN.

Mexico’s Benefits

Not all countries are an attractive candidate for nearshoring activities. However, several elements make Mexico a reliable partner for these operations. First of all, the country has a very specialized, skilled and cost-effective workforce. The country’s proximity to the US has only been boosted by close trade relations and the creation of USMCA, which according to an MBN interview with Oscar Silva, Partner Leader of KPMG’s Strategy Group, will make Mexico a “trustworthy partner in the coming years,” specially after China and the US trade fallout.

Ana Riquelme, Executive Director of AMID mentioned during an MBN interview that Mexico’s manufacturing capacities and good practices are also valuable assets for the medical devices sector. “Devices like heart valves are handmade with such quality and detail that it is hard to deny the level of our production.” Riquelme also mentioned that Mexico is working toward sustainable practices, gender equality and competitive salaries. “Companies are taking care of their talent and of their environment to remain a top choice.”

Mexico’s Opportunities

Mexico’s industrial and manufacturing sectors are strong in many fronts, from automotive to medical devices. However, even such strong industries could be strengthened by nearshoring suppliers. Prior to the COVID-19 pandemic, product and supply mobility did not seem to be a concern. But after a heavy and continuous supply chain disruption, several essential manufacturers had to source their raw materials from local companies. These disruptions resulted in price increases, longer delivery times for customers and a loss of competitiveness against other companies.

According to an article by Prodensa, Mexico is one the most attractive destinations for nearshoring activities for companies that have plants in established, nearby countries. In the healthcare sector, the medical devices industry is the main seeker for these new alternatives. According to an article by Tetekawi, nearshoring is a popular option for many companies in the US and Mexico as they often produce goods for local markets and can save money by having production closer to their end consumers. US companies often turn to Mexico for shorter supply chains while still obtaining offshoring advantages.

Pharma is another sector with the potential to take advantage of Mexico’s position regarding nearshoring, as Leticia Zermeño, Director of Grupo CPQ, described to MBN. The country’s already strong pharma sector “should be prepared and not rely completely on foreign suppliers.” According to Zermeño, the government should create a program to encourage and support a strong national pharma industry to face health challenges. “It should encourage the local production of active pharmaceutical ingredients, aside from the already well-developed medicines market.” She also stressed that the safety of the population should not be compromised due to supply chain disruption.

Apotex’s case during the COVID-19 pandemic showcases what a self-sufficient supply chain looks like. Americo Garcia, Director General of Mexico and Latin America at Apotex, explained to MBN that due to its vertical supply chain integration, the company had enough supplier capacity and control over the quality of its products. “We are the only company with API production in Canada and Mexico and we are also the only company with complete product manufacturing in those two countries. I did see companies diversifying their supplier base but it was not our case.”

To date, the reality for pharma companies in Mexico is that they are highly dependent on certain suppliers for key drug components: APIs. Efrén Ocampo, President of Grupo Neolpharma, told MBN that Mexico is dependent on China, India and increasingly the EU for these activities. But, the COVID-19 pandemic had a significant impact on the global production and supply of APIs. “For example, India, a large manufacturer, saw its exports affected,” explained Ocampo. Due to the increased local demand for medication during the COVID-19 pandemic, India’s government had to issue a new approval process for the export of APIs, which affected international manufacturing operations. “These circumstances helped us to recognize that there are significant opportunities to manufacture APIs in Mexico and to eliminate our reliance on foreign countries.”

According to Ocampo, Mexican authorities are also realizing this potential. Minister of Economy, Tatiana Clouthier, is strongly supporting the local manufacturing of APIs as it is becoming increasingly apparent that countries should be more autonomous in their API production. As a known investor in the pharmaceutical industry, Grupo Neolpharma has taken this opportunity to triple its API production at a plant in Mexico. USMCA has also helped North America to increase its regional API manufacturing and supply capabilities. The opportunity is such that the World Bank’s International Finance Corporation (IFC) is offering loans for API manufacture, according to Ocampo. Analysis on investment opportunity and returns is still needed, however. “We first need to study the consumer habits in Latin America to determine which APIs to manufacture,” API production is known to be expensive, so companies also need to consider changes in the current administrations’ healthcare policies.

Mexico’s Challenges

API and medical devices final assembly are Mexico’s largest nearshoring opportunities. Meanwhile, API production costs remain a challenge. “Mexico has a strong pharmaceutical legacy and history,” shared M.S. Nagendra, Director General of Zydus Pharmaceuticals. “But there are still opportunities and gaps in terms of technology and innovation. API production is one of those gaps as there are just few local companies dedicated to their API production.” According to Nagendra, if the Mexican government encourages investors for API manufacturing, it would further strengthen the local pharma industry.

On the medical devices side, Riquelme explained to MBN that to complement manufacturing efforts and boost the sector’s capacities, AMID is asking Clouthier to attract more final assembly processes to Mexico. To achieve this, however, Mexico would need to increase its medical devices consumption, as the final assembly is commonly done at the product’s point of sale to avoid damaging the device.

Miriam Bello Miriam Bello Journalist and Industry Analyst