Nearshoring and the Opportunity Cost for Mexico’s SMEs

I have always stated that one of the greatest services that logistics integrators can provide to our customers is the reduction of opportunity cost through the leverage that our infrastructure is able to provide. 

Our job is to have the necessary structural resources in the right locations and the human resources specialized in the construction of logistics models that help our customers to get their products to all those who require them in a short time and at the lowest possible cost anywhere in the world. 

Global supply chains are determined to reduce the vulnerabilities evidenced during the pandemic. This trend, combined with Mexico's privileged geographic location, has made the country the ideal place to consolidate the relocation of production. 

It is, therefore, vital that companies and management teams prepare themselves to participate in this inertia that aims to guarantee shorter delivery routes, more competitive costs and, above all, prevent a new collapse of global supply in future scenarios. 

With several factors converging, Mexico is, according to analysts, facing a golden opportunity to trigger significant business and economic growth. 

The scenery reminds me at times of one of those drawings by M.C. Escher in which numerous stairs change direction, forcing the viewer to look at the scene from different perspectives and that fits perfectly each time, imposing on our brain the challenge of breaking with learned logic. 

Currently, Mexico already plays an important role in manufacturing leadership in industries like automotive, aerospace and medical supplies. All of these activities, with their high-quality standards, have boosted the specialization of value chains. Although our largest trading partner is the US the nearshoring phenomenon is leading to a more intense integration of certain players who do not wish to stop participating in global trade no matter how far from home they may be. 

The report NEARSHORING TO MEXICO: Perspectives and opportunities for a resilient supply chain, published by Thomson Reuters, provides an interesting analysis of the factors that place the spotlight on Mexico as the ideal anchor point for the configuration of a more resilient supply chain. 

These include clear rules of origin and greater integration between the North American Free Trade Agreement (NAFTA) partners, which offers significantly lower tariffs and taxes for the partners, while in China, these concepts reach up to 19% of the cost. 

The report also mentions Mexico's "highly skilled, young and competitive manufacturing workforce," the 14-times lower shipping costs from Mexico to the US than from China and the more than 50 ports of entry from Mexico to the US, capable of enhancing any logistics strategy. 

The media outlet  also highlights the 13 free trade agreements with 48 countries, which connect the Mexican economy with more than 1.3 billion consumers, 60% of the world's gross domestic product (GDP). 

Beyond the considerations mentioned above, Datamétrica Aporta* analysts have tracked investment directly related to nearshoring. 

Their findings are very interesting: in 2022, 135 investment announcements were made in Mexico for a total of about US$18.6 billion, which contrasts significantly with the US$4.8 billion in 2021, an increase of almost four times, resources that, in order of importance, come from the US, Mexico, Germany and China. 

As if that were not enough, Tesla has confirmed the installation of its electric car manufacturing plant, with an initial investment of US$5 billion. This plant consolidates Mexico as a key player in the electric vehicle industry, and Tesla has not arrived alone, as part of its supply chain will also be installed in Nuevo Leon. 

Many things are happening at an accelerated pace. The arrival of this capital will undoubtedly generate a greater demand for services, products and inputs that will have a strong impact on the SME sector in Mexico, which, according to INEGI, contributes 42% of GDP and generates 78% of national employment. An extraordinary window of opportunity is also opening for this segment.  

These are times to act with agility and evaluate the opportunity cost in relation to the response demand of a market that has learned to move quickly. 

It is more important than ever for entrepreneurs to link up with local chambers of commerce, join business groups, stay informed and seek out experts who can strengthen their value proposition. 

In logistics, outsourcing represents synergy that translates into value generation and the opportunity to exponentially increase the reach of a business. 

The greatest risk lies in not being prepared. Trying to reduce the opportunity cost using our own resources is not always the most advisable. It is possible to evaluate potential allies that have warehouses that can adapt to variations in demand, take care of the management of imports, exports or orders to achieve a positive scenario of integration, not only of large capitals, but also of small and medium-sized companies to this golden opportunity that represents the reorganization of the value chain. 

Sources and references: 

PDF White Paper Nearshoring (thomsonreutersmexico.com) 

(228) Nearshoring: la inversión ya está aquí | Entrevista con Jorge Flores Kelly - YouTube 

¿Por qué eligió Tesla a México? Las razones de Musk (revistafortuna.com.mx)