Is Mexico the New China? Re-Shoring and Nearshoring to Adjust to Supply Chain Challenges (2024)

FAQs

Is Mexico the New China? Re-Shoring and Nearshoring to Adjust to Supply Chain Challenges? ›

Nearshoring and Reshoring Convergence

Nearshoring is the process of companies moving offshore operations to neighboring countries. Mexico has been a main focus of the trend with the country providing skilled but comparatively cheaper labor. U.S. Census Bureau data shows it is the top importer at 14.8%.

Regardless of those tariffs, Mexico replaced China as the new No. 1 source of imports in the U.S. – led by the U.S. automotive industry which is importing near record high numbers of cars from Mexico. According to reports, China's developers are building industrial parks in Mexico now to host Chinese companies.

Amid shifting geopolitics and competition, US and Chinese companies both see potential in Mexican manufacturing: Low labor costs, geographic proximity to American markets and the US-Mexico-Canada (USMCA) agreement — a free trade accord established in 2020 that makes trade in North America more cost-effective and ...

Relevant issues for supply chains in Mexico could possibly include an increased targeting of cargo for illegal drug trafficking and migrant stowaways and trafficking, an uptick in cargo theft conducted by cartels, increased violence affecting company operations, and a more pervasive criminal environment should the ...

Foreign direct investment in Mexico is on pace to reach $30 billion this year. The money is coming from large multi-national companies like Tesla, Mondelez, Nissan, Honeywell, AT&T, Mattel and Lego, for new manufacturing capacity to reach the U.S. market.

Nearshoring allows EU companies to reduce their dependence on distant suppliers and minimize the risks associated with global supply chain disruptions. For example, during the COVID-19 pandemic, Zara's nearshoring strategy enabled the company to quickly adapt to global supply chain disruptions.

Data released last week from the US Department of Commerce showed that Mexico surpassed China in 2023 to become the leading trade partner of the United States.

Right now, Mexico is the biggest exporter to the US for the first time in 20 years. The latest figures from the US Department of Commerce show that it overtook China in 2023. US imports from Mexico rose to $475.6 billion in 2023 (+4.6%). US imports from China fell to $427.2 billion in 2023 (-20.3%).

Among Mexico's major exports are machinery and transport equipment, steel, electrical equipment, chemicals, food products, and petroleum and petroleum products. About four-fifths of Mexico's petroleum is exported to the United States, which relies heavily on Mexico as one of its principal sources of oil.

Why US companies are leaving China? ›

The tariffs on Chinese goods have made it difficult for businesses to do business in China, and many companies have decided to move their operations elsewhere. As the trade war continues between the US and China wages on, companies are moving their factories out of China and setting up in other countries.

Intel, Microsoft, Nike, and Dell have all recently signaled their intention to move some of their manufacturing out of China to different shores.

Thus, the cars are from General Motors, Ford, Chrysler, BMW and Renault. However, little by little the presence of specifically Chinese brands in Mexico has also been increasing. Among the names that landed in the last three years are: Changan, JMC, Chirey, Jaecoo, Jetour, among others.

Product delays and empty shelves threaten to continue as consumer tech and groceries top the list of industries most concerned about supply chain in 2022.

Five primary supply chain management problems are customer service, cost, risk management, maintaining supplier relationships and employee retention. Customer service includes meeting customer expectations of speed and quality and adapting to changing demand.

The unemployment rate in Mexico has sustained a steady decline since it peaked at 5.5% in June 2020. By May 2023, it reduced to 3%, below its pre-pandemic level of 3.2% in December 2019. This decline mirrors the labour market recovery observed in most OECD countries.

Nearshoring is a business strategy in which a company outsources its business processes or services to a location nearby. This location is typically within the same region or continent, reaping the benefits of reduced costs and cultural alignment.

"Many companies are looking at Mexico for production in lieu of Asian countries to be closer for any major supply chain disruptions that often occur in Asia," said Golicic, adding, "Mexico is close, and labor is still a lot lower than the US."