How Mexico is Supporting Shifting Supply Chains

In navigating the complexities of global supply chains, companies are increasingly turning to strategic outsourcing strategies to optimize their operations and enhance competitiveness. These outsourcing strategies extend beyond traditional manufacturing to encompass a spectrum of business functions, including customer support, IT services, and back-office operations. 

By leveraging specialized service providers in offshore destinations like Mexico, companies can not only benefit from cost savings but also access expertise in niche areas and free up internal resources to focus on core competencies. Moreover, outsourcing allows companies to adapt dynamically to changing market conditions and scale operations efficiently in response to evolving customer demands. 

In today's fast-paced business environment, adopting tailored outsourcing strategies tailored to specific business needs has become a key driver of success and resilience in global markets. Below, we’ll outline the advantages of pushing more companies to invest in a Mexico factory.

Shipping times prompt supply chain moves

The biggest advantage Mexico offers manufacturers is its proximity to the U.S., as it enables “controllable logistics costs and much lower risk of supply chain disruptions due to events like the pandemic and U.S.-China trade frictions," He Xiaoqing, president of Kearney Greater China, commented in an article for Nikkei Asia.

This advantage has only grown in recent years. Isaac Larian, CEO of toy manufacturer MGA Entertainment, noted in an article by Marketplace that where it once took three weeks to move merchandise from China to a port in LA or Long Beach, Calif., today it takes the company five months to get its products to U.S. warehouses.

The need to time to market has pushed a number of manufacturers to move operations to Mexico. When air conditioner manufacturer Daikin Industries announced plans to invest $230 million in building a Mexican plant, the company was motivated in part by the cost of shipping products to the U.S. from Thailand and other locations in Asia. Today, Mexico Now reports shipping accounts for more than 20% of the company’s total unit cost. A location in San Luis Potosi can reduce delivery time by 80%.

Similarly, Quanta Computer Mexico, a manufacturer of components for electric cars, is investing $130 million in an expansion of its facility in Garcia, Nuevo Leon, to fully move production from Shanghai and Taiwan to Mexico. Company executives said the move is to benefit from a location that puts them closer to their customers in the United States.

The right site for fast delivery

Given that speed-to-market is driving location decisions, it’s easy to assume that a location on Mexico’s northern border will provide the biggest return for your investment. However, as Omar Troncoso, a partner at Kearney’s Mexico City office, commented in a recent Marketplace article, “If you’re trying to find real estate or industrial parks or warehousing close to the border, you won’t get anything until 2024, 2025. Everything’s sold out.”

There is also a trade-off that comes with a location along the northern border. In addition to limited real estate options, this location also commands higher wages. In fact, Mexico sets a higher minimum wage for the economic free zone along the northern border to ensure higher wages.

Many manufacturers find that they can better balance labor costs and skill with a location in one of the six Mexican states along the U.S. border, but not in a border city specifically. Popular manufacturing areas within the interior of these border states include Hermosillo, Guaymas, and Empalme in Sonora; and Saltillo in Coahuila.

How Mexico is strengthening logistic infrastructure

Several Mexican states are taking steps to ensure that, even from an interior location, manufacturing companies are able to rapidly move products to their U.S. and global customers.

It’s with this goal in mind that the Government of the State of Guanajuato is working closely with railroad company Kansas City Southern de Mexico on a beltway rail project aimed at strengthening industrial growth in the area. The Celaya-NBA Line Railroad Bypass, known as Ferroférico, is a first step in supporting Guanajuato as a logistics center in Mexico.

To the west, Contecon Manzanillo (CMSA), a subsidiary of International Container Terminal Services Inc. (ICTSI) at the Port of Manzanillo in the state of Colima, is doubling its capacity to handle cargo. The Port is a gateway to imports and exports from Asia. An investment in its gantry systems aims to speed container loading and unloading times, moving goods more quickly inland to nearby industrial locations.

Easily accessible ports have been a driver in several manufacturers’ location decisions. When Italy-based auto parts maker CA Automotive moved into Durango, the company cited the strategic location as a driving factor in its decision. “In the coming years, the state can create a greater flow that will lead to much more work thanks to the proximity to the port of Mazatlan,” explained Stefano Crespi, CEO of parent company Confezioni Andrea Group.

Further north, the port at Guaymas has attracted a fast-growing cluster of aerospace component manufacturers. The port provides easy accessibility into the manufacturing hub of Hermosillo and, from there, a three- and half-hour drive to the U.S. border at Nogales.

Mexico is also working to ease border crossings for commercial trucks. The San Jeronimo, Mexico-Santa Teresa, New Mexico, port of entry is one of the fastest-growing commercial truck entry ports along the U.S.-Mexico border. The federal government, alongside the state of Chihuahua, are working to strengthen infrastructure at the port of entry to speed transit through Texas and New Mexico.

In May 2022, Foreign Secretary Marcelo Ebrard and U.S. Ambassador to Mexico Ken Salazar announced work to modernize the existing infrastructure at this crossing and build additional new ports of entry with an investment of $700 million. The goal is to have these expansions fully operational by the end of 2023.

Become a part of the supply chain solution

There’s ample evidence that years of talk about nearshoring manufacturing in locations close to the U.S. has turned into action. There’s no end in sight to the global supply chain disruptions, and manufacturers can’t afford to sit and wait for a solution. As product lines evolve and OEMs turn to new solutions, now is the time for product and component manufacturers to move closer to their customers.

If you’re ready to make a move toward better serving your customers, Tetakawi can help you find the ideal site and comprehensive support to get your Mexico factory up and running fast. Contact us to learn more.