Nearshoring is a strategy for reconfiguring global production and supply chains that seeks to relocate part of companies’ production to countries or regions with proximity to consumption centers.
The proximity to the United States has been a relevant factor in attracting investments to our country in recent years, which had a significant increase following the signing of the Free Trade Agreement and the incorporation of other trade agreements. However, with the arrival of President Donald Trump and his tariff policy towards Chinese products, the recent increase in trade tensions between the US and China, the breakdown of supply chains as a result of Covid-19, and the war between Russia and Ukraine, have intensified companies’ preference for relocation in production chains.
Why Mexico?
In the current context, many Asian companies, mainly Chinese, are seeking to establish themselves in other places, and in this sense, Mexico gains unique relevance, mainly due to its privileged geographical location, the favorable demographic bonus, its better infrastructure compared to other countries in Latam and the large number of trade agreements.
It is important to note that Mexico is currently among the top 15 exporters worldwide (with $578 billion in 2022). In addition, Mexico is also among the 10 most attractive countries for FDI (Foreign Direct Investment).
Expectations
With nearshoring, it is expected that 20% of global trade will be relocated, and close to 30% of Chinese production will be located in other latitudes that are more friendly to North American trade policies. For our country, the expectation for nearshoring is variable, an additional growth in GDP of 8% is estimated for the next 6 years, with an increase in exports of almost 35%, and with additional investments between $80 billion and up to $160 billion. In the next 2 years alone, the arrival of more than 400 foreign companies, mostly Asian, is expected. The above could generate a virtuous circle for our country in the coming years, in terms of growth, job creation and development.
Opportunities by state
The border states, along with the center of the country, are expected to benefit the most either due to the proximity to the USA or the greater infrastructure respectively, with the border entities of Chihuahua, Coahuila, Baja California and Nuevo León being the most favored in terms of to its representativeness in non-oil exports, followed by States such as Tamaulipas, Aguascalientes, San Luis Potosí, Guanajuato and Querétaro, Puebla and Jalisco. Considering FDI, the entities that present the highest investment flows include Cdmx, Nuevo León, Jalisco, State of Mexico, Chihuahua, Baja California, Tamaulipas, Coahuila, Guanajuato and Querétaro.
Opportunities by sector
The sectors that could benefit the most in the coming years as a result of nearshoring could be: industrial parks, fibers of the industrial sector, companies related to transportation, logistics and storage, companies related to infrastructure, both construction and accommodation and housing, industrial metals, automotive, machinery and equipment, electrical and electronic appliances, medical devices, the aerospace sector and the agricultural sector.
Main challenges
Despite the great advantages that our country offers to take advantage of nearshoring, it is also true that it faces important challenges that could limit the potential of these benefits. In this sense, we consider that among the main challenges that our country faces to better take advantage of the benefits of nearshoring, we would highlight qualified labor, the need for more and better infrastructure (ports, airports, energy, water, roads), security and rule of law.
- This text was written by Carlos Alberto González Tabares, director of Commercial Strategy at Monex. Contact: [email protected]. Telephone 55 5231 4521