Nearshoring Opportunities Abound as Global Supply Chains Shift

You can watch the video of this panel here.

Recent events are making the importance of strategic geographical hubs more apparent to numerous companies. The US-China trade war, the pandemic and later the blockade of the Suez Canal raised awareness about the importance of having facilities in Mexico to attend to the needs of the North American market. To help the country become a reliable business partner, experts from several productive industries met on Mexico Business Forum 2021 Virtual Edition to discuss strategies to strengthen exports and attract investment.

During the panel “Mexico's Nearshoring Opportunity as Global Supply Chains Shift” held on May 26, speakers addressed Mexico’s strengthens a global business partner. “The country is one of the most important business partners for the US, which is our largest export destination and with whom we have a newly renewed FTA that has propelled local growth by 30 percent,” said Vladimiro de la Mora, President of General Electric México. Mexico’s strongest assets to become a global business partner are its legal certainty, security, manufacturing capacity and a competitive energy sector, according to De la Mora. However, the country still has to invest on talent. While Mexico has one of the highest rates of engineering graduates, they are not using their full potential because there are few opportunities for them to specialize, said de la Mora. “Companies should ally with universities and governments to make a positive shift that will result on a virtuous circle for employment, investment and specialized services.”

The US’s effective vaccination rollout can further help Mexico increase its attractiveness as a business partner, said Sergio Tagliapietra, President of IVEMSA. “(The US’) economic activation will inevitably reflect on Mexico due to our importance. It can also make other countries notice Mexico’s geographic position and excellent human capital and stablish here,” said Tagliapietra. However, he explained that companies should not only look at a country’s geographical location; businesses should search for the country that offers them the right support and services. “Rightshoring,” Tagliapietra explained, consists of a “process to identify the best location for manufacturing, IT or business processes so a company can achieve faster delivery.” This trend can help Mexico and reduce the world’s supply dependence on China.

“The pandemic reset supply chains and exposed this large dependence on China,” agreed Jesse Damstra, CEO of Philips México. Damstra explained that Mexico is an attractive partner but to get rid of doubts, the country needs to become more business friendly. “It is important to begin to attract foreign investment, stablish exchange rates policies, develop stricter and consistent rules on how to do business to become future-ready manufacturers that go beyond production and have the adaptable factories that companies demand.”

Constant education on trends such as digitalization will help local companies adopt them, added Damstra. These internal changes will also permeate to the rest of the country as companies innovate their products and services so customers have access to better solutions. 

Infrastructure investments, however, are also necessary before more companies come into the country. “Mexico lacks electric infrastructure so some industrial plants have to work with emergency plants, which pollute more,” said Héctor Ibarzabal, Managing Director México at FIBRA Prologis. Mexico’s clean energies must be accessible to companies, added Ibarzabal, but to do so the federal government has to be aligned with this vision. Mexico should also identify its strongest areas of expertise to attract investment. “National development is an opportunity to understand local supply challenges and meet international ones,” said René Espinosa, President of FEMIA.

“Mexico has yet to understand that it is on an international race, where opportunities can be taken by other countries,” said Tagliapietra. Ibarzabal agreed and pointed that South Korea and Chile are potentially attractive partners for Mexico but if the country fails to offer fair conditions, they can find other hubs. “Asian companies are not used to global operations so they ask for different things, which is another challenge for Mexico,” said Ibarzabal.

Espinosa observed that “Asia Pacific, Morocco and Eastern Europe are giving certainty and guaranteeing investment in tech to boost manufacturing; they are Mexico’s strongest competitors.”

Considering these challenges, what actions is Mexico’s taking to enhance nearshoring? “Pandemic containment and vaccine rollout,” said Damstra. “Unfortunately, the private sector cannot intervene in vaccine rollout,” as vaccines for emergency use are impossible to acquire for companies, added Damstra. However, the US FDA is already exploring working with the private sector based on the industries’ interest and the pressure to get vaccines.