Supply Chain Nearshoring Development
in Mexico

Through nearshoring as well as regional expansion, global organizations continue to inject capital into Mexico, elevating its strategic role for global footprints. And Mexican manufacturing exports have been on the rise, strongly driven by trade with the United States.

The IMMEX Program* is an instrument which allows the temporary import of goods or services that are used in an industrial process or service to produce, transform or repair foreign goods imported temporarily to Mexico for subsequent export. This Mexican program aims to enable foreign companies to manufacture in Mexico through cost‑efficient methods and incentives while still focusing on the quality of goods being produced. The industry is an indicator to the importance of the manufacturing‑for‑export sector in Mexico, and the development of the North American supply chains.

The IMMEX Program (Manufacturing, Maquila and Export Service Industry) is an instrument which allows companies to operate under a preferential tax and fiscal program. This incentive program is available for foreign companies that bring goods or services into Mexico temporarily, to be transformed and then shipped out again)

Mexico has become an attractive location for companies looking to nearshore their supply chains, due to its proximity to the United States, lower labor costs, and favorable trade agreements. Mexico leads key manufacturing sectors that offer a range of benefits for companies looking to establish operations in Mexico.

• Aerospace Mexico has access to a potential high‑tech export market, as a member of the Wassenaar Agreement.
• Electronic Mexico is the 8th largest producer of electronics in the world.
• Automotive Mexico is the 7th largest vehicle producer worldwide and 4th largest exporter globally.
• Medical Devices Mexico is the 8th largest global manufacturer of medical devices and top exporter to the U.S.
• Metal Mechanic Mexico is among the 10 main exporters of machinery and mechanical devices.
• Furniture Mexico is the 2nd largest furniture supplier to the U.S.
• Pharmaceutical Mexico is the 2nd largest industry in Latin America and the 12th in the world.
• Biotechnology Mexico is the 2nd country in Latin America with the highest number of patent applications.

Kurt Schmidt, PRODENSA’s VP of Consulting, identifies the Total Cost of Ownership as the foundation for critical decisions and investment in supply chain relocalization initiatives. The main factors to consider in supply chain relocalization:

• Labor Costs one of the main reasons why companies choose to nearshore to Mexico is because of the lower labor costs compared to the United States or other countries. However, it’s important to consider not only the direct labor cost in the region of operation, but also the indirect costs associated with training, turnover and productivity. The different regions in Mexico vary greatly.
• Transportation Costs Nearshoring to Mexico can reduce transportation costs, transit times and reduce inventory stocking / safety stocks especially if your products are destined for the United States market. However, it’s important to consider the cost of transporting raw materials, components, and finished products to and from Mexico and across its varied landscape.
• Regulatory Compliance Mexico has a complex regulatory environment that can add to the TCO of doing business in the country. Companies may need to invest in compliance‑related activities such as obtaining permits, certifications or licenses, which can increase initial costs but also eliminate tariffs & duties, depending on the operating structure.
• Infrastructure Costs While Mexico has made significant investments in transportation and logistics infrastructure, there are still areas of the country that may lack the necessary infrastructure to support certain industries. Notable challenges include electricity costs, water scarcity, telecommunications and renewable energy sources.
• Supply Chain Risks Nearshoring to Mexico may introduce new supply chain risks that did not previously exist for many companies, such as political instability or security concerns. But diversifying your global supply chain can potentially mitigate other risks like logistics snags or demand‑planning. Companies may need to invest in risk mitigation activities, such as insurance or contingency planning, which can be an unforeseen cost.

Overall, the costs of supply chain relocalization to North America could be significant. But they can be offset by the benefits that come with it, such as improved supply chain resilience, reduced risk and increased customer satisfaction. Educate yourself with tangible data and if needed, select an advisor to mitigate the risks to nearshoring your supply chain.