Unlocking New Horizons: The Advantages of Reshoring in Mexico Over China

Posted by Eduardo Zepeda on 9/7/2023

Unlocking New Horizons: The Advantages of Reshoring in Mexico Over China

A significant shift has been underway in the manufacturing landscape in recent years. Companies are reconsidering their global supply chain strategies; for many, reshoring has emerged as a compelling option. While China has been a long-standing manufacturing hub, businesses increasingly consider Mexico a strategic location for nearshoring manufacturing. This blog post will examine the benefits of reshoring in Mexico instead of China, backed by insights and data from reputable sources.

1. Proximity and Speed
One of the benefits of reshoring in Mexico is its proximity to the United States. The Dallas Federal Reserve has emphasized how this geographical advantage leads to shorter lead times and lower transportation costs. Their research shows that over 80% of land imports to the U.S. Come from Mexico.

Even Asian companies are reshoring in Mexico, such as Chinese auto parts manufacturer Yinlun and tier Tesla supplier, which has opened a new plant in Salinas Victoria, Nuevo Leon, with an investment of U.S. $80 million. The award-winning auto part manufacturer has unveiled a new facility in Nuevo León, hoping to create 1,000 jobs in the state.

2. Cost Savings in Transportation
Due to its proximity to the U.S., sourcing from Mexico can result in transportation costs compared to sourcing from China. A report by FTI Consulting highlights that nearshoring to Mexico can lead to transportation savings of up to 20% compared to shipping from Asia. This cost advantage is why businesses view Mexico as a destination for reshoring.

3. Reduced Inventory Holding Costs
Shorter lead times and reduced transportation costs also contribute to inventory holding expenses. When goods are produced in Mexico, companies can maintain inventory levels, which helps reduce storage costs and the risks associated with too much or too little stock. These efficiency improvements contribute to the advantages of bringing production to Mexico.

4. Skilled Workforce
Mexico has a workforce available, especially in manufacturing and engineering. According to FTI Consulting, the country possesses a talent pool, making it easier for companies to find and train workers with the necessary skills. This aspect is crucial for ensuring product quality and operational efficiency.

5. Trade Agreements
Mexico's strategic location is also advantageous due to its network of trade agreements. Mexico offers access to over thirteen free trade agreements in place, including ones with markets like the United States, Canada, and the European Union. These agreements simplify trade processes, reduce tariffs, and enhance market reach, making Mexico an appealing option for bringing production.

6. Market Demand and Logistics Infrastructure
Additionally, as Prologis highlights, nearshoring to Mexico aligns with the country's growing demand for logistics services and real estate. Significant investments have been made in Mexico's logistics infrastructure, including distribution centers and transportation networks, to support supply chain operations while meeting increasing needs related to e-commerce fulfillment. As a material solution provider, Precision Converting is a certified leader in flexible materials converting and fabrication services in Mexico. The Precision Converting team first understands what engineers seek regarding performance requirements to offer customized solutions that meet a set of parameters for diverse manufacturing applications.

7. Reduced Political and Regulatory Risks
Opting for reshoring in Mexico helps minimize the regulatory risks often associated with manufacturing in China. Mexico boasts an environment with a track record of fostering favorable conditions for foreign investment. This stability instills confidence in businesses regarding their supply chain operations.

8. Tariffs and Import Costs
The U.S.-Mexico-Canada Agreement (USMCA), which has replaced NAFTA, offers trade terms for goods manufactured in Mexico. As per the Dallas Federal Reserve, this agreement lowers tariff rates and clarifies import costs, making it easier for businesses to plan and allocate budgets for their operations.

9. Agility and Responsiveness
In today's changing business landscape, being agile and responsive is crucial. Reshoring production to Mexico allows companies to swiftly adapt to fluctuations in demand, market dynamics, and unforeseen disruptions. Being closer to the U.S. Market provides an advantage in adapting to evolving customer preferences.

10. Sustainability and Environmental Considerations
Sustainability is a business factor today. Therefore, a reshoring initiative to shift manufacturing operations back to Mexico can help reduce carbon emissions associated with long-distance shipping, aligning with a company's sustainability goals while enhancing its credentials.

To sum up, many factors support moving manufacturing operations to Mexico rather than China. Mexico offers a combination of advantages, making it an attractive choice for businesses aiming to improve their supply chains. These include its proximity, cost-effectiveness, availability of workers, favorable trade agreements, and well-developed logistics infrastructure. As the global manufacturing industry evolves, Mexico's role as a reshoring hub will become even more prominent.

11. eMobility
Mexico is making great strides in the eMobility industry, positioning itself as a frontrunner in Latin America and on par with other countries worldwide. For instance, in 2022, they began working with the William Davidson Institute at the University of Michigan on the eMobility Ready project, which will be developed in three stages. This initiative aims to set the stage for a competitively open, more systematic transition to electric mobility.

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