By Eric Porras*
The announcement of the construction of Tesla’s mega-plant in Nuevo León has caused a stir in the industrial field of our country. With an initial investment of 1 billion dollars and a potential to reach 10 billion dollars in 10 years, the news has made headlines in the main business media around the world. But,What are Elon Musk’s reasons for considering Mexico as an integral part of his production strategy?, which includes locations in the US, China and Germany? The answer is in the nearshoringthe global manufacturing trend that has been gaining traction in recent years, especially in the wake of the Covid-19 pandemic.
He nearshoring seeks to mitigate the risks associated with extended supply chains and with concentration of production in Asian countries, the so-called offshoring. Since the 1960s, this manufacturing model sought to reduce production costs and access to raw materials at the expense of raising transportation costs. This strategy achieved great benefits, such as having a wide range of quality products at affordable prices, mainly in the automotive, electronics, and textile industries. However, after events such as the pandemic, the war tariffs between China and the US, Brexit, the shortage of microprocessors or the recent conflict between Russia and Ukraine, among others, have revealed the fragility of global production chains.
Faced with this situation, the nearshoring It consists of bringing manufacturing operations closer to countries close to the places of final consumption. In essence, it is a process of reconfiguring global supply chains to make them less vulnerable to disruption. caused by events such as those already mentioned, as well as the integration of production systems, taking advantage of regional synergies and reducing transportation costs and delivery times.
Consequently, for companies seeking to export to the North American market, the largest in the world in terms of imports, Mexico is highly attractive. The advantages are clear: an extensive supply base in various areas, qualified labor at competitive costs, a very favorable free trade agreement with the US and Canada, geographical proximity and manufacturing areas integrated into supply chains. supply from North America. A recent IDB study estimates that the entire Latin American region could increase its exports, by concept of nearshoringat 64 billion dollars, of which Mexico could capture 35 thousand.
Let’s go back to our initial story to better understand the process of nearshoring. A Tesla car produced in China can take 4-6 weeks to arrive in the US, not counting port delays or other problems that may arise. Added to this is the transfer time to China for inputs from Tesla’s own plants in the US, such as lithium batteries. These terms are significantly reduced when producing in Mexico, with transfer times of 2 to 4 days through Nuevo Laredo. But surely Elon Musk not only took these factors into account, but mainly the possibility of having a highly resilient and reliable integrated regional manufacturing system in the face of global disruptions.
The investment announced by Tesla is just a sample of the moment that Mexico is experiencing with the nearshoring. Other automotive companies have announced or made important investments in our country, such as the expansion of the BMW plant in San Luis Potosíthe expansion of the capacity of the Nissan plant in Aguascalientes or the recent KIA plant in Nuevo León.
The aerospace industry is another sector that has grown significantly, with more than 350 companies operating in Mexico. due to the nearshoring, its production can increase considerably in the following years. The states with the greatest potential to attract foreign direct investment in this sector are Baja California, Chihuahua, Nuevo León and Sonora in the north of the country, and Querétaro in the Bajío. Companies like Boeing, Bombardier, Safran, Airbus and Honeywell have played an important role in the growth of this industry. which, together with the automaker, can position Mexico as a global manufacturing center. Other sectors that can benefit are electronic components, household appliances, medical devices, the pharmaceutical sector and ICT.
Mexico has important competitive advantages related to its logistics and productive infrastructure that support the operations of large companies that seek to relocate to our country. We have a unique opportunity to achieve unprecedented industrial growth. However, there are great challenges to capitalize on this situation, as will be discussed in the Tec Business Summit on April 26, simultaneously, in Querétaro, Guadalajara, Monterrey and Mexico City. The development and investment in clean energy sources, advances in infrastructure and security, sophistication of our workforce -especially in technology, logistics and manufacturing-, and improvements in administrative and customs processes, are some of the challenges to be addressed to make this a reality. great moment of Mexico.
*Eric Porras is National Director of MBA Programs at EGADE Business School and speaker at the Tec Business Summit
Editor’s Note: This text belongs to our Opinion section and reflects only the author’s vision, not necessarily the High Level point of view.
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