Whether it's automotive, medical device, electronics production or another industry, Mexico is one of the most popular locations for both offshoring and nearshoring companies. Let's take a look at the two business practices and how they're beneficial for manufacturers operating in Mexico.
Nearshoring refers to the practice of moving portions of a company's operation to a nearby location, sometimes across national borders. Nearshoring is a subset of offshoring with the main differentiator being that the outside company is located a little bit closer to you, but still in another country. This destination often shares a border with the manufacturer's own region or country. The process of nearshoring is not without its benefits, but Rita Gunther McGrath, associate professor at Columbia Business School, believes the U.S. will recover as a manufacturing hub - especially as it becomes less cost efficient to manufacture offshore. While offshore countries were once a premier place for businesses to relocate, increasing inflation and wage expectations, specifically in China altered that standing. Nearshoring to closer locations like Mexico, is more attractive and advantageous to manufacturers, specifically those in the United States. IT Today lists some of the benefits as:
Nearshoring to Mexico is just one option for manufacturers. These companies also have the option to outsource their business operations a little further from home.
Offshoring refers to outsourcing that takes place across national borders, often to a more distant country where production costs are is significantly cheaper. Similar to nearshoring, offshoring has some benefits for companies to partake:
The key difference between offshoring and nearshoring is that offshoring is moving a company's operations to a distant location, while nearshoring involves relocating operations to a nearby country in the same region. If frequent communication and collaboration are required, nearshore outsourcing may be the better option. The company office will often be in the same time zone or a closer zone, which makes it easier to communicate with the development team.
Whereas, one of the advantages of offshoring is that businesses can save more on operating costs. Often offshoring operations to farther away countries results in lower labor and production costs that can make a big difference in the accounting books.
While nearshoring is similar to offshoring in some regards, there are several pros to establishing nearshoring operations. Nearshoring ensures more cultural similarities than offshoring and smaller time zone differences, which can make it easier to collaborate. Nearhshoring offers better control than offshoring and can also result in shorter ship times for your goods. Another benefit is that people are more willing to relocate, if necessary, which can reduce your need for talent recruitment.
Manufacturers have a multitude of locations to choose from when deciding to offshore or nearshore portions of their firm operations. While the criteria for selecting a business location differs depending on a company's industry and needs, Mexico is a popular destination for businesses from around the world for both their offshoring and nearshoring operations. The country offers many advantages for manufacturers that choose it for their production. Here are four:
Skilled labor: Mexico boasts a large educational infrastructure, with around three million people enrolled in post-secondary learning, according to World Education News and Reviews. Labor and manufacturing costs are considerably lower in Mexico than in China or the U.S. For example, it is 4 percent cheaper to operate in Mexico than in China, the South China Morning Post found. Furthermore, the country frequently invests in education to make sure all future employees have the necessary skills, talent, and knowledge to succeed in the plethora of manufacturing jobs.
It can be a difficult decision for manufacturers to decide to move their business operations elsewhere. However, while the choice may be challenging, both offshoring and nearshoring offer companies substantial benefits. The selection of location is dependent on the business, but Mexico is a prime location for manufacturers of several industries, including medical devices, automobile, energy, aerospace, tech and software development, and many others. With skilled labor, its proximity to the U.S. and participation in free-trade agreements, more manufacturers should consider Mexico when choosing their nearshoring and offshoring destination.
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