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Navigating Nearshoring Challenges: Strategies for Success

By Alicia Silva - Sustentabilidad para México SUMe


By Alicia Silva | President - Fri, 08/11/2023 - 10:00

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After five years of working with the industrial sector, managing more than 400 assets and five different investment  funds, I have witnessed the challenges of nearshoring firsthand. From the very beginning, we have seen the challenges that now lie ahead of us. Fortunately, the experience of those years gave us some resources to cope and thrive in  nearshoring. Here are five  strategies to ride the wave and overcome these challenges. Whether you are a seasoned expert in the industrial sector or a new developer aiming to expand into this market, these insights will assist you in navigating the years to come.

First, let's clarify what nearshoring is and what it is not in the context of Mexico.

Nearshoring in Mexico refers to the practice of relocating business operations or manufacturing processes from a distant country to Mexico in order to reduce travel time and gain proximity to the US market. However, it's important to note that logistics and manufacturing in Mexico are not solely limited to serving the US market. We have several companies establishing their presence in Mexico to meet the growing demands of the Mexican market itself, particularly in booming sectors, such as hospitality (in Baja, Riviera Nayarit and Riviera Maya), and housing  and logistics for major cities, especially those with 22 million people who require a lot of products and resources. Each sector requires different approaches, and it is imperative to understand these distinctions in order to navigate them effectively.

So, in order to overcome nearshoring challenges, there are some insights that could help pave the way to success in Mexico. The challenges faced by companies planning to establish themselves in Mexico are similar across the board. While the northern border and states experience the greatest influx of companies, they also encounter the most significant obstacles that must be overcome to thrive in the nearshoring era.

Here is a summary of the challenges to consider and the best approaches for overcoming them:

  1. Challenge: Low inventories: The availability of inventory is currently limited, and not all assets meet the requirements of incoming companies with higher standards. As a result, the built-to-suit approach has gained popularity in the industrial sector.Opportunity: Nearshoring is expected to continue for at least the next five years. Leasing prices are rising, and there is a growing demand for spaces. If you are considering starting a venture, now is still a good time to capitalize on the nearshoring trend. However, having a client with specific requirements is even more advantageous, as it ensures long-term satisfaction and demand fulfillment.

  2. Challenge: Infrastructure for energy supply: The competition for KVAs, which refers to the energy capacity required for assets, presents challenges when accommodating clients with high energy demands. Mexico has not invested in electric infrastructure at a pace that matches the growing demand. The current legislation only allows for 500kVA, which is insufficient for manufacturing purposes. Many clients wish to have their own infrastructure for photovoltaic (PV) systems, but they are concerned about potential restrictions imposed by the government on the amount of energy they can generate.Opportunity: Photovoltaic systems and energy storage can be the solution. This combination can fulfill the energy needs of manufacturing or logistics operations. By implementing onsite energy generation, you can become self-sufficient and create an energy island without the need to rely on the energy grid or provide infrastructure to CFE (Federal Electricity Commission, Mexico's national electric utility company).

  3. Challenge: ESG is now a key part of the agenda. Every aspect of environmental, social and governance (ESG) is considered by real estate portfolios. Therefore, if you plan to become a developer or continue your real estate strategy for nearshoring, it is crucial to have a sustainability strategy in place. In addition to the environmental agenda, the social agenda is gaining increasing importance. Collaborating with communities and improving their quality of life is at stake. The social aspect, which has been somewhat delayed, now plays a significant role in attracting new companies to Mexico as the demand for skilled workers continues to rise.Opportunity:  Care for the workforce is a must. The workforce is finally being treated differently, as the focus shifts beyond just better salaries. Now, housing opportunities, amenities for sports and recreation, and even childcare options are being incorporated into developments. People are taking all these factors into consideration when deciding to stay and develop their careers within companies.

  4. Challenge: Green building certifications are now linked to ESG reporting, but it's important to recognize that not all certifications are the same. As resources become more limited, it becomes crucial to consider the true objectives behind certification. Some clients have integrated these standards into their corporate agenda, recognizing their importance. There are various types of green building certifications, and not all of them go beyond maintaining the status quo. When we attempt to do less in a fragile ecosystem, it affects everyone. Greenwashing practices will continue to be penalized, as they are detrimental not only to business continuity but also to addressing the challenges posed by our inadequate infrastructure. Opportunity: Choosing green building certifications that adopt a systemic approach is essential. Merely focusing on energy and water is insufficient. We must also prioritize biodiversity, indoor air quality, thermal comfort, climate mitigation, adaptation, and develop a clear plan for decarbonizing the industry while respecting all users and collaborators. In the month of June, we experienced temperature shifts that defied expectations, specially in the north or Mexico. It is crucial to address these climate changes and construct buildings that account for such variations. This forward-thinking approach will make a significant difference in the long run, don’t think the least effort will take us far. 

  5. Challenge: Challenging corruption: Initiating construction projects requires significant effort. Even if one strives to adhere to all regulations and guidelines, challenges will inevitably arise in various forms.Opportunity: It is crucial for us to engage in constructive dialogue with local governments, comprehend their needs, and negotiate the significance of job creation and overall prosperity achieved through responsible practices. Active participation as citizens and collaboration with different associations will be necessary to fulfill our duty and ensure progress for all.

I recently attended a conference in Monterrey, Mexico, where I felt incredibly encouraged by developers expressing their commitment to improving real estate standards. They emphasized that their motivation goes beyond mere compliance with legislation or client demands. As Mexicans, we deserve better infrastructure, and the private sector is dedicated to overcoming these challenges, leading us toward a stronger and more prosperous country. Let's seize this opportunity together and work toward our shared goal.

Photo by:   Alicia Silva

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