For decades, companies have looked to offshore manufacturing as a way to reduce production costs, but that trend is shifting. More firms are now considering nearshore manufacturing as a way to balance both labor and operational cost savings.
So, what is nearshoring? Nearshore manufacturing is defined as moving production of a good to a nearby country where labor costs may be lower. That other country may share a border or time zone with the home office, boosting collaboration with in-house staff, or be close enough to simplify executive travel or reduce freight costs to and from the new location.
Unlike outsourcing, nearshoring implies that the new manufacturing site is part of the original company, rather than a subcontracted team working to a level of quality it defines.
Below we'll explore just a handful of the reasons to explore nearshore manufacturing in Mexico.
1. Improved logistics
Nearshore manufacturing provides more comprehensive savings than offshoring due to the combination of lower labor costs and simpler logistics. The first benefit comes from reduced time for goods to reach their destination. For example, should a U.S. company move operations from China to Mexico, they can reduce shipment time from five weeks to a few days. Those time savings come with dramatic drops in freight costs as well.
The North American Corridors connect goods with customers through an efficient system of highways, rail, and international ports, offering ample options for getting products to their destination. In 2018 alone, $31.6 billion USD worth of goods traveled by freight truck across the U.S.-Mexico border.
2. Supply chain stability
Many companies opt to nearshore manufacturing in order to supplement global operations. By establishing a broad global footprint, companies are able to position their products closer to regional customers. This strategic positioning also limits damage to the company in the event that one facility loses operability. For example, in the event of a natural disaster, production demands could still be met by another facility.
In moving manufacturing to Mexico, companies also gain the benefit of established supply chains. Mexico is a center of automotive, aerospace, and electronics manufacturing, among other sectors. Manufacturing leaders in these industries have attracted downstream component suppliers, developing strong regional supply chains.
3. Simplified communication
Having facilities that operate in similar time zones can provide greater responsiveness. Working with an operation on the other side of the world could mean a 12-hour delay in response time and production changes. This level of improved time management that can drive greater project efficiency.
Nearshore manufacturing also bolsters a company's ability to regularly visit new operations, audit new processes, or send experienced managers in to train supervisors. The cost of sending managers from the U.S. to Mexico, for example, becomes much more palatable than regular flights to India (on average, about $1,000 in comparable savings).
Of course, those frequent visits can also be challenged by differences in communication. Operating in a foreign country will require employers to gain an understanding of local expectations and cultural norms. This tends to go more smoothly when operating closer in proximity to the home office, where customs may be more familiar. This edge matters, as communication challenges can lead to production problems.
4. Transformational growth
With the convenient proximity of working in a neighboring country, small and medium manufacturers, in particular, can gain the edge they need to open to new markets and grow financially while staying close to their clients. The potential for overall operational cost savings increases when working with a strategic partner that can help with a site selection and talent recruitment plan, armed with local insight, to maximize your chances of success.
Why Mexico is the right choice for nearshoring
There's a good reason that Mexico is top of the list for many companies considering a nearshoring move. Not only does Mexico meet the benefits offered above, but it also offers a high level of quality in the manufacture of complex products.
The Mexican workforce's technical skill is behind the excellence of complex products ranging from aerospace components to medical devices and automobiles. That skill comes in part through investment from federal and state governments and corporate partners in specialized training programs dedicated to manufacturing job growth.
Why the time is right for nearshore manufacturing
In one 2020 survey of manufacturers, global consultant McKinsey & Co. indicated that 46 percent of sourcing executives expect the trend toward proximity sourcing or nearshoring to increase in the near future.
There's a reason now is the time to move manufacturing to Mexico. With the ratification of the USMCA trade agreement, many companies looking to increase the amount of North American content in their products are considering shifting operations to Mexico. The agreement also strengthens the relationship between the North American trade partners, offering a level of certainty around trade benefits.
Certainty is hard to find in business, but companies can dramatically improve their cost savings and production efficiencies by working with a strategic partner that knows the local market. Tetakawi offers a full range of advisory and support services that can help companies rapidly ramp up production and get their products to the market. If you're ready to redefine your manufacturing presence, contact us today.