MEXICO Trends and Developments Contributed by: Javier Domínguez, Santiago Carrillo, Gabriel Torres and Diego Rodríguez, Ritch Mueller
Mexico: Are We Moving Towards the Nearshoring Paradise? Background
greatest in South-East Asia and East Asia, the regions with the highest concentration of off - shoring. The Russian invasion of Ukraine, which began in February 2022 with the military aggression ordered by President Vladimir Putin in regions along their countries’ shared border, resulted in an increase of gas and oil prices, which in turn increased the cost of transporting goods. These changes in supply chains have led to global imbalances causing certain companies to con - sider nearshoring strategies in order to reduce geopolitical risks. In addition to the COVID-19 pandemic and the Russia–Ukraine war, the US and China industrial trade war, which began in 2018 during Donald Trump’s presidency, and continues today, has caused a significant increase in import tariffs on certain products in both China and the US. Altogether, while offshoring initially offered cost savings advantages in terms of labour and sup - ply chain expenses, the drawbacks outlined above have prompted companies to reassess their over-reliance on specific global regions. In this context, nearshoring has become an attrac - tive alternative for companies, due to this strat - egy’s relatively low production costs, compared to those of the companies’ country of origin, and geographic proximity reduces relocation and logistics costs. Nearshoring opportunities in Mexico Mexico has positioned itself as one of the main destinations among the countries offering nearshoring opportunities. This is due to, among other factors: • the border with the United States, one of the largest consumer markets, along with the
Due to its privileged economic and geograph - ic position, Mexico is playing a leading role in nearshoring, which has become a popular topic in the international business scene. Is nearshor - ing already a reality? Will the country succeed in capitalising on the promises of nearshoring? What are the main challenges to achieve this? What do investors seek? Nearshoring is a strategy used by companies to relocate production chains, processes and services, among others, to areas geographically adjacent to the main consumer markets in order to reduce costs. For example, a nearshoring strategy for a European company with its main customers in the United States would consist of establishing its production processes in a place such as northern Mexico, in order to reduce the cost of transporting its products to its main cus - tomers. In recent years, offshoring, which is the strat - egy that contrasts with nearshoring, has shown some limitations that have led companies to seek alternatives to reduce costs. For example, US or European companies choosing to estab - lish their production chains in Asian countries face cultural and linguistic differences that can increase production costs, as well as logistical and geopolitical challenges. These constraints and challenges have been manifest in recent years with events such as the COVID-19 pan - demic, the Russia–Ukraine war and the US–Chi - na trade war. For example, the global COVID-19 pandemic caused massive disruptions in global sup - ply chains due to closing of borders and trade blockades. These supply chain constraints were
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