How Mexico Manufacturing Solutions Reduce Supply Chain Challenges
01.20.22The pandemic has caused manufacturers to quickly shift strategies and face challenges they’ve never experienced before. As a result, they seek solutions that will serve them for the long term. For many U.S. manufacturers, this means nearshoring to Mexico to help create a more reliable operating base compared to China.
In 2020, overseas operations were severely delayed, if not shut down altogether, with these challenges continuing well into 2021 without an end in sight. Cargo shipments from China have been backed up in ports for days and sometimes weeks. Plus, the shortage of truck drivers available to offload shipments and deliver them to customers has created further delays.
Though manufacturers hope operations will resume to normal, there’s no indication these supply chain challenges will subside anytime soon. The constant disruptions have caused more and more companies to change course in an effort to find stability in their operations. As a result, they’ve determined Mexico’s manufacturing solutions offer advantages that are too valuable to pass up. These include:
Better Logistics
The proximity from the U.S. to Mexico saves on time and costs with regard to travel and transportation. For example, a shipment from China costs well over $10K. Whereas, transportation from the Mexico border region into the states is closer to $250. Additionally, making a visit to a Mexican facility from the U.S. doesn’t require as much planning as traveling to China. Plus, there are no quarantine restrictions or vastly different time zones presenting additional challenges.
Read more: Why Mexico represents the future of manufacturing over China.
Greater Trade Protection
The USMCA provides greater trade protection and incentives. Numerous updates have led U.S. and Canadian manufacturing companies to rethink their offshore production and consider nearshoring to Mexico instead. Part of the trade agreement includes new Rules of Origin which encourage continued foreign investment into Mexico. These rules state 75% of a vehicle’s components must originate in North America.
Meanwhile, the U.S. and China have been engaged in a trade war for several years. With retaliatory tariffs causing ongoing disruption. These problems continue to sway companies in favor of Mexico manufacturing as a way to overcome supply chain challenges.
Unique Foreign Benefits
Mexico’s IMMEX program offers a significant cost-savings advantage. Under the IMMEX program, foreign manufacturers can exempt Mexico’s 16% VAT tax on all temporarily imported goods, materials, and equipment. This benefit immediately takes effect when partnering with a shelter services company.
A shelter model, also unique to Mexico, maintains IMMEX certification, as well as all other permits and licenses required to operate. A shelter bears all administrative responsibilities of setting up a new operation. It provides the infrastructure, experience, and expertise necessary to launch production in three to four months.
Through better logistics, greater trade protection, and unique foreign benefits, Mexico’s manufacturing solutions help to provide a better way forward. They offer new opportunities for those who have experienced supply chain disruptions from China and want to engage in a different strategy.