Many companies are recognizing the substantial benefits associated with nearshoring their operations. Seen as an increasingly promising alternative to offshoring, some of the benefits of nearshoring in a nearby country like Mexico include a shorter supply chain, duty-free imports, and robust intellectual property rights (IPR) protection.
To help you understand whether nearshoring is right for you, let’s take a look at what it is, what the top benefits of nearshoring are, and why now is the perfect time to make the transition.
Nearshoring is the term used to signify when a company moves all or some of its manufacturing operations from the U.S. to Mexico. The term nearshoring was coined with traditional offshoring in mind. Offshoring became an increasingly popular method during the late Twentieth-century for companies to gain access to lower labor costs by moving their manufacturing operations to an offshore location such as China and other countries located along the Pacific Rim.
Offshoring didn’t occur in a vacuum but was rather one component of a US economy that was shifting from manufacturing to service. Today, the U.S. economy is largely service-based, with only a few states boasting manufacturing as a dominant sector. However, as concerns over intellectual property (IP) protections, rising wages, and vulnerable supply chains have increased over recent years, so too has an interest in taking advantage of nearshoring opportunities to begin manufacturing in Mexico.
Ultimately there are three important strategies that companies will look at when they want to reap the cost benefits of moving their manufacturing to a new global location. These include:
Nearshoring is being increasingly scrutinized as a viable alternative to offshore manufacturing due to the numerous advantages associated with it. Let’s take a look at what the key nearshore outsourcing benefits are:
While the benefits of nearshoring to Mexico may be clear, you might be wondering why it is becoming increasingly popular now. While there are long-standing trends that have contributed to the adoption of nearshoring as an alternative to traditional offshoring, including rising wages in China and increasingly tenuous U.S. – China relations, there are two more immediate reasons that many companies are considering nearshoring their operations: the recent passage of the USMCA and the COVID-19 pandemic.
Do you know the difference between USMCA vs. NAFTA? The enactment of the USMCA is a very powerful incentive for U.S.-based companies to consider nearshoring. Against the backdrop of trade-disputes and higher wages in China which make offshoring less desirable, the USMCA modernized the North American Free Trade Agreement (NAFTA) for the 21st century. Among some of the most notable changes embedded in the USMCA are the strongest IP protections of any international agreement to-date, duty-free access to Mexican and Canadian markets, and a streamlined import-export process that reduces red-tape and facilitates the movement of goods and services across borders.
The impact of the COVID-19 created a supply chain pandemic. During the pandemic it quickly became clear the long supply chains associated with offshoring were more fragile than was once believed. This forced many companies to explore alternative options which could shorten their time to market and strengthen their supply chain. For many U.S.-based companies, Mexico under the new USMCA regime is the best option available.
An increasing number of companies are nearshoring to Mexico because it offers numerous advantages over offshoring. Nearshoring to Mexico strengthens supply chains, which the COVID-19 pandemic unequivocally exposed as more fragile than was initially believed. At the same time, nearshoring to Mexico shortens supply chains, reducing the time-to-market.
Under the USMCA, American companies get duty-free access to Mexican markets and a streamlined import-export process. Importantly, the USMCA greatly strengthened the intellectual property registration, protection, and enforcement mechanisms in Mexico, bringing these much closer to achieving parity with laws and regulations in the United States.
If your company is interested in nearshoring to Mexico there is no better time than now! To learn more about nearshoring benefits, contact us today.