The Multiplying Effect of Nearshoring on Mexico's Supply Chains

It is increasingly common for companies to seek to transport goods in a transparent, efficient, and secure manner. To do so, they resort to strategies such as relocating factories to bring their products closer to end consumers. This practice is known as nearshoring (relocation).

This term, which has begun to gain popularity in the business ecosystem — in addition to being closely linked to manufacturing, assembly, and supply stages — sets in motion strategies that allow organizations to move part of their production and know-how to shorten the geographical distance between customers and manufacturers.

However, nearshoring also affects other mechanisms involved in the business environment, such as supply chains.

Supply chains are a set of elements that play a role in the development of a service or product to meet the needs of the end consumer; therefore, their importance lies in the commercialization of such items.

This link between suppliers stands out when regionalization is added. Just like nearshoring, the supply chain is also responsible for bringing products closer to the public; hence, the process of relocating factories offers supply chains a shortening of their links.

Through the supply chain-nearshoring formula, bringing items to the market more quickly is ensured, a fact that gained special relevance starting in 2020.

The pandemic exposed the fragility of supply chain links due to the disruptions they experienced in their workflows because of port and border closures. This situation led to the evolution of goods transit and distribution times.

Since then, the business environment prefers to work with more resilient and shorter supply chains, with the purpose of establishing strategies that control the demand for items and ensure continuity of operations despite disruptions.

Additionally, the business world relies on these supply networks so they can diversify to combat product shortages, anticipate cost increases based on high demand — a situation that can cause the deterioration of good relationships with customers — and pay attention to metrics with the aim of projecting future demand.

The supply chain-nearshoring combination is already yielding results, as the trend of bringing supply chains closer to relocation practices has increased by 8 percentage points. Thirty-five percent of North American organizations implement regionalization,confirming that the business environment increasingly accepts the relocation of production centers.  

Nearshoring, n Favor of the Environment

Undoubtedly, commercial activity brings life and dynamism to the business universe; however, it contributes to global warming. In fact, over 90% of greenhouse gas emissions by a company — and between 50% and 70% of its operating costs — are attributed to supply chains. 

Due to the emission of polluting gases, in July 2021, a legal framework on sustainability was created. Specifically, this happened in Germany, a country that stated that as of 2023, organizations consisting of more than 3,000 employees are obliged to implement measures to ensure their supply chain participants respect human rights and the environment.

For this reason, nearshoring makes it easier for companies, and therefore their supply chains, to implement more eco-friendly strategies. These decisions make companies more attractive and encourage consumers to continue to purchase goods distributed through mechanisms that help reduce the ecological footprint.

Furthermore, the shortening of supply chains also leads to organizations receiving state incentives to transition toward decarbonization.

The routes to reduce carbon emissions from the electricity sector by 2040 through renewable energies is an example of the above. In Mexico, Yucatan relies on a theoretical methodology designed to decarbonize its electricity production until 2050.

Relocation Supports the National Economy

Nearshoring would contribute — in the short and medium term — US$78 billion per year in additional exports from Latin America and the Caribbean, while Mexico would gain higher profits annually by adding US$35.3 billion in goods exports.

In terms of foreign investment, thanks to relocation, our country experienced a significant growth of US$13.43 billion during the first quarter of 2023.

In turn, nearshoring opens the door for manufacturers to expand their field of action to territories like Europe, Canada and the US. For this reason, the geographic location of the Mexican republic helps to evolve its commercial relationship with other nations, such as the US.

Its proximity to our northern neighbor allows for the definition of trade policies between both territories for the exchange of goods and services through the United States-Mexico-Canada Agreement (USMCA). That’s why Mexico is also an attractive nation for the arrival of companies wishing to remain close to the North American market.

Our country has metropolises with the potential to expand nearshoring to border areas or other cities; Nuevo Laredo and Tijuana are two examples because their geographical location is crucial for relocating supply chains.

Nuevo Leon, Sinaloa, Aguascalientes, and Coahuila have the ideal elements for companies to consider relocating their commercial operations, since they offer skilled labor — with greater product quality control — better working conditions, and suitable infrastructure.

It is worth noting that relocation generates savings in export duties or shipping costs and strengthens job creation through the link that suppliers and subcontractors establish to mobilize supply chains.

In 2019, exports of goods and services from the US to Mexico supported 1.1 million jobs.

Nearshoring has provided mobility to supply chains, reducing time and distances, contributing to job creation, and continuing to position them as a strong link in Mexico’s commercial activity and its economy.