Nearshoring Is Back In Northern Mexico
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Nearshoring Is Back In Northern Mexico

Photo by:   Wonderlane, Unsplash
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Pamela Benítez By Pamela Benítez | Junior Journalist & Industry Analyst - Thu, 12/16/2021 - 10:38

As a result of the COVID-19 crisis clouding commercial routes, the global supply chain crunch began to encourage economic growth along the US-Mexico border with emerging factories from multinational companies, strengthening the local economy in Ciudad Juarez, Chihuahua.

The demand for excavators and bulldozers has grown exponentially in northern Mexico and this had led to the creation of new factories from international companies that are trying to cover the holiday season demand as supply routes are jammed.

Ciudad Juarez registers that 98 percent of its existing space is being leased by multinationals like DHL reported MBN, with a 20 percent of price increase over the past year to almost US$6 per square foot.  

Danish medical device-producer Ambu A/S, Chinese furniture company Keeson Technology Corp., Californian-based Boyd Corp and Little Tikes Cozy Coupes, are some of the companies that have either constructed one or multiple facilities in Ciudad Juarez, with operations that started immediately right after the buildings were finished.

For instance, the Californian Little Tikes Cozy Coupes toy company has 750 containers with toy products stuck at the supply port route in Los Angeles. The company’s operations usually take place in China, but since the items have not been exhibited on US store shelves for the holidays, Little Tikes opened a plant in Mexico. 

Despite knowing that the company’s containers will not be collected on time, optimism grows as the Juarez-based new plant has the capacity of shipping daily two truckloads of toys to US store shelves, and according to Isaac Larian, the company´s CEO, truckloads are expected to grow to 10.

Furthermore, the Californian company is planning to switch operations from China to Mexico with the opening of a second production factory in the country in 2022, as Little Tikes Cozy Coupes has “big ambitions and plans for Mexico.”

This nearshoring tendency, the strategy applied by the Californian toy company, has grown rapidly due to the COVID-19 pandemic with Mexico “continuing to benefit from its geographic location, trade agreements and trends such as nearshoring,” wrote Liliana Reyes, General Director, AMEXCAP to MBN.  

The tendency is expected to remain relevant in C-suites even after the pandemic is gone because by shortening the supply chain’s length, companies obtain more effectiveness in reducing risks as these are moving their production centers closer to final consumers.

Mexico has strongly benefited from the nearshoring tendency mainly due to the country’s geographic location but also because US multinationals think of northern Mexico as the best nearshoring option, a decision encouraged by cheap labor, plenty of land and proximity to the border, especially to El Paso, Texas.

Besides Juarez, cities like Tijuana, Matamoros and Piedras Negras, have also experienced economic growth for the same reason. The tendency adopted lately by multinationals reinforces an existing one ignited by NAFTA, where factories in the region have always represented a key gear for the US supply chain.

However, with China entering the World Trade Organization, US multinationals decided to switch operations to China given lower costs. Nevertheless, with Donald Trump’s commercial war against China and the COVID-19 crisis, the tendency of investing in northern Mexico’s manufacturing came back and is expected to be “structural and long term” according to Jason Tolliver, Managing Director, Cushman & Wakefield.

The tendency is expected to slow down until 2024, but in the meantime, it is creating thousands of jobs in the region that attract local talent as well as migrants allocated in the southern region of the country.

Photo by:   Wonderlane, Unsplash

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