Why Nearshoring in Mexico Is a Key Strategy for US Manufacturers
10.04.18
When compared with offshoring, the benefits of nearshoring—moving manufacturing operations to a nearby (bordering) country—are obvious. Of course, there will be a cost saving, mainly due to lower labor costs, but there are other factors involved as well.
For US companies, Mexico’s geographical proximity alone offers a host of benefits:
- It’s relatively easy and less expensive to visit your facility in Mexico.
- Communication is simpler to manage because there will be at most three hours difference between your US offices and Mexican facilities (in many cases, you’re able to keep them in the same time zone or just one zone ahead/behind).
- Transportation and shipping are quicker, so your products reach your customers faster.
Also, because you have multiple shipping options (not just ocean freight), you can ship in smaller quantities and make adjustments if your design or inventory needs change. Nearshoring is especially ideal for high-mix, low-volume manufacturing. Mexico also has a highly skilled workforce, with over 110,000 engineering students graduating each year.
Mexico in particular has some unique solutions that make it an attractive choice for US and other foreign manufacturers:
- The IMMEX/maquiladora program offers tax benefits (deferred import duties on raw goods and materials) to foreign manufacturers.
- The shelter option allows companies to operate in Mexico with reduced legal risk and liability.
- Mexico’s free trade agreements, Reciprocal Investment Promotion and Protection Agreements, and other trade agreements with dozens of countries make it a gateway to worldwide markets. Many European and Asian manufacturers have established facilities in Mexico to access North and South American markets.
Ensure Nearshoring Success
While nearshoring in Mexico is a great solution for many companies, and generally less complicated than offshoring in China or other countries in Asia, it’s still important to prepare well for your nearshoring operation. Here are some things to keep in mind when planning.
Have a Realistic Timeline
Setting up your operations in Mexico is relatively quick, but it’s not immediate. Generally, if you choose to operate under a shared shelter, you can expect to be fully operational in about 3-4 months. If you obtain a dedicated IMMEX license, your timeline will be about 4-6 months, and if you choose to establish an independent entity, it could take 6-12 months before you’re up and running.
Understand Mexican Labor Laws and Salary Demands
You often hear that the minimum wage in Mexico is around five dollars a day, but in the manufacturing sector, the average wage is higher: around $15-16/day for a basic operator, $42/day for a technician, and $100/day for an engineer. A good Mexico shelter provider will be able to advise you on the labor market in the city or region you choose for your facility and help you set competitive rates and benefit packages.
Mexico’s labor laws also tend to be much more pro-worker than in the US. For example, Mexico doesn’t recognize at-will employment, so when you let an employee go, you must demonstrate just cause. There are protections for new mothers, training requirements, and specific types of employee contracts. Your shelter provider’s HR team will be an invaluable asset as you navigate the Mexican labor market and labor laws.
Build a Winning Team
While a shelter provider like IVEMSA has Accounting and Trade Compliance departments to handle your Mexican operations, as you plan your nearshoring operations, you should consult with US-based international tax accountants or fiscal advisors and customs/trade compliance experts. Ideally, they will work with their counterparts in Mexico to ensure that everything goes smoothly on both sides of the border.