Large Portions of offshore manufacturing may soon be returning

July 24, 2023

Nearshoring Supplier Base in Mexico: How to Get It Right

Global trade has undergone massive shifts during the past four years, first with the US imposing tariffs on China during the Trump administration, then COVID wreaking havoc on supply chains globally, but especially those with exposure to China, and most recently with the war in Ukraine. The great decoupling of the US and Chinese economies may be overly hyped but its implications are significant for companies with relevant parts of their supply chain in China. (link: http://www.nearshoremexicosourcing.com/ text: Nearshore Mexico Sourcing predicts that trade will continue to decline between the US and China through 2030). There will likely be many beneficiaries of this decoupling from Vietnam and Taiwan in nearby Southeast Asia to Romania in Eastern Europe, and, of course, to Mexico and Canada, given the recently renegotiated free trade agreement. Companies across industries are having to make tough decisions about where to shift their supply chain – and at what cost – to adjust to these new realities. We have supported clients in determining asset footprint decisions given recent supply chain upheavals. Although most discussions focus on production, too often, the underlying supplier base is overlooked; companies have added landed manufacturing to Mexico but are still importing significant raw materials and finished goods because they didn’t plan a similar supplier transition. We believe all companies with manufacturing in Mexico must do a strategic rethink of their supplier base by answering the three questions below: ## 1. What is the cost/benefit analysis of nearshoring supply? The Mexican market continues to be an attractive place to do business given labor costs. Although manufacturing wages depend dramatically on which cities a facility is located in, our estimate is that the fully-loaded cost for Mexican workers in northern border states is US$4.90 per hour, where their Chinese counterparts earn US$5.70 per hour. Nearshoring also improves assurance of on-hand products and allows producers to remain agile to respond to ever-changing demand scenarios. To avoid halting production, manufacturers have air freighted large quantities of “low value” materials; the price of flying a kilo from Shanghai to North America is about US$8, more than two times the pre-pandemic price. With supply localized, additional costs and logistical headaches can be minimized. Additionally, maintaining supply closer to manufacturing allows for shorter lead-times, which can support an enhanced innovation agenda. Finally, there is a risk mitigation benefit related to minimizing exposure to “black swan” events. Operating in geopolitically risky environments has a cost. Companies have had to abandon Russian operations and take multibillion-dollar losses. With jitters rising between Taiwan and China, the risk of a geopolitical event that impacts Chinese suppliers is nonzero. Localized supply to support localized production – even if at a higher cost – can also have a psychological benefit: peace of mind. However, the other side of the equation is the potential change in costs related to shifting or adapting the supply chain. Significant analysis is required to understand the difference in total cost of ownership (TCO) between China and Mexico as this varies by supplier type and industry. The process to calculate TCO requires a knowledge of ex-work prices in China and Mexico, freight costs, increases in on-hand inventory cash costs, and any applicable tariffs that could be waived. In Nearshore Mexico Sourcing recent experience working with different manufacturers in Mexico, for basic electronic components where China has a significant scale, we estimate about a 5 percent-plus difference in cost in Mexico versus China. However, this 5 percent difference (typically only 1-2 percent at a finished goods level) must be compared against the benefits previously mentioned. ## 2. Once the decision to bring supply local has been taken, how can companies support their supplier base? There is an initial decision that must be made between finding a supplier or supporting the set-up of a new supplier. Regardless, suppliers’ local operations will have to be vetted for quality, price, and compliance, which can be a lengthy and costly process. On location, there is a trade-off between developing supply closer to manufacturing facilities versus finding a supplier in a manufacturing cluster where there are multiple suppliers that can be brought into the fold. However, in Nearshore Mexico Sourcing experience, road freight that doesn’t follow a typical transport path (from Monterrey to the US border, for example) can cost almost as much (on a per unit basis) as shipping something from Eastern China to a western Mexican port, such as Manzanillo; location remains pivotal. After location support has been provided, there is an opportunity to connect suppliers with local and state governments. Projects that meet certain thresholds in terms of job creation and/or alignment with priority industries can receive incentives. Although not straightforward, the opportunity to receive fiscal and non-monetary benefits must be explored. ## 3. If it’s not feasible to attract a significant number of suppliers locally in the short-term, what are potential shortcuts to smooth the transition? Finding local suppliers that conform with required quality, price, and compliance standards is typically a 12–24-month process, which can be even longer when helping Chinese suppliers set up in Mexico. Contract manufacturers (CMs) provide significant flexibility in production at a quality that typically meets or exceeds previous China-based suppliers. Across Mexico, global contract manufacturers are present but also 20-plus regional players specializing in a variety of industries. However, companies must consider when to use a CM and in what capacity. A company must decide what degree of control it’s willing to outsource: procurement and manufacturing or including design and engineering. Given that CMs are looking to support higher-value activities, it is critical to align interests. Geographic presence is another consideration: large, global CMs can provide coverage in geographies where nearshoring may also be occurring (such as Southeast Asia, Eastern Europe) and can support a seamless rebalancing of the supply chain globally. Finally, companies must determine via top-to-top conversations if capacity exists in Mexico for the type of product they’re looking to supply. From a recent survey of the Mexican operations of global CMs, many are at or near capacity for the next two to three years. Given CM capacity constraints in specific geographies in Mexico, companies must be bolder in the near term to make nearshoring happen. Some CMs are looking for partners to grow their footprint in Mexico and are even considering co-investing to speed up the transition and align incentives. Finding creative ways to smooth the supply chain transition from China to Mexico should be an executive-level priority. ## The time to act is now (link: https://www.bcg.com/publications/2020/redrawing-the-map-of-global-trade text: The decoupling of supply chains from China is ongoing) and will continue as companies seek to be closer to end customers and reduce risks. Decoupling will create pressure on companies to diversify their footprint and their supply chains. The strategic and cost ramifications of shifting production and suppliers to Mexico (or other countries) must be diligently calculated. Although not a decision to be made lightly, nearshoring unlocks numerous opportunities for firms that may be at risk of further supply chain complications.

August 7, 2023

Mexico: Country with the Greatest Nearshoring Potential in The Americas

**Mexico’s strategic location, excellent connectivity, and long history of openness to trade have made it the top choice in North America for international companies looking to expand their operations to areas with competitive costs and market access.** Now, with the entering into force of the new USMCA and companies looking to diversify their supply chains, Mexico is prepared for a boom in nearshore and offshore manufacturing for exporters from North American and around the world. Its strategic location is one of the main reasons it offers some of the world’s most competitive costs for companies looking to start up manufacturing services in Mexico. This, added to the additional certainty for investors provided by the new and updated trade agreement that went into effect in July aimed at strengthening the North American supply chain, makes it is the obvious choice for manufacturers in a range of industries. ![Offshore manufacturing in Mexico](http://www.americanindustriesgroup.com/wp-content/uploads/2020/10/offshore-manufacturing-in-Mexico-1.jpg) Another important factor making it attractive for companies looking at setting up nearshore or offshore manufacturing in Mexico is the country’s excellent connectivity. **The transport of manufactured goods from Mexico to any point in the USA takes about 24 hours, **equating to shorter delivery times, less risks and lower costs than other low-cost countries. Its geographic location and little or no difference in time zones also make it easy to closely monitor manufacturing processes. Besides being neighbor to one of the largest markets in the world, with which it has 54 border crossings to the United States, it also has direct access to central and south America and both the Atlantic and Pacific Oceans. Internally, Mexico boasts over 80,000 miles of highways and trade routes, further facilitating the movement of goods to any place in the world by air or sea. **It is also the 3rd country with the most airports globally and 3rd most railroads in Latin America.** ![International companies in Mexico](http://www.americanindustriesgroup.com/wp-content/uploads/2020/10/start-up-manufacturing-services-in-Mexico.jpg) All these factors, combined with its long history of openness to trade as a way to expand and diversify its economy, give Mexico preferential access to around 50 markets. This policy of openness to trade is reflected in its 13 free trade agreements (FTAs) and nine economic complementation agreements and partial scope agreements, in addition to 32 agreements for the promotion and reciprocal protection of investments (APPRIs) with 33 countries. As a result, Mexico is one of the world’s top 15 exporters, exporting a total of US$387 billion annually. Over the last six years, foreign direct investment in Mexico has remained stable, between US$30 and 35 billion. **More than 47% of the country’s inward FDI has been channeled towards advancing manufacturing industries and manufacturing 4.0, making it one of the most attractive countries for FDI.** Geographic location, connectivity, and a culture of openness to trade are three of the most important factors making it the perfect place to set up operations. If your company is interested in manufacturing in Mexico, find out more about if the move is right for your company by contacting a provider of shelter services in Mexico.

August 2, 2023

Nearshoring to Mexico in 2022: Benefits, Challenges, Solutions

If you’re looking for rapid growth for your company without the cost and hassles of expanding domestically, **nearshoring to Mexico** can be the answer. Mexico is a Latin American country that provides companies favorable conditions for business growth. And many firms, especially ones in the manufacturing sector, consider nearshoring to Mexico as a viable alternative to outsourcing in their own country. In this article, we’ll explain what nearshoring to Mexico involves and its [7 key benefits](https://biz30.timedoctor.com/nearshoring-to-mexico/#benefits). We’ll then cover the [5 major challenges](https://biz30.timedoctor.com/nearshoring-to-mexico/#challenges) involved and how manufacturing companies can overcome them. **This Article Contains:** (Click on the links below to go to a specific section of the article) - [What is Nearshoring to Mexico?](https://biz30.timedoctor.com/nearshoring-to-mexico/#explained) - [7 Key Benefits of Nearshoring to Mexico](https://biz30.timedoctor.com/nearshoring-to-mexico/#benefits) - [Strong Protection of IP Rights](https://biz30.timedoctor.com/nearshoring-to-mexico/#protection-ip-rights) - [Low Labor Costs](https://biz30.timedoctor.com/nearshoring-to-mexico/#low-labor-costs) - [Availability of Talented Workforce](https://biz30.timedoctor.com/nearshoring-to-mexico/#talented-workforce) - [Shorter Supply Chain](https://biz30.timedoctor.com/nearshoring-to-mexico/#shorter-supply-chain) - [Favorable Trade Relations With the US](https://biz30.timedoctor.com/nearshoring-to-mexico/#favorable-trade-relations) - [Can Conduct Business Even During the COVID 19 Pandemic](https://biz30.timedoctor.com/nearshoring-to-mexico/#business-pandemic) - [Availability of Infrastructure](https://biz30.timedoctor.com/nearshoring-to-mexico/#availability-infrastructure) - [5 Major Challenges of Nearshoring to Mexico](https://biz30.timedoctor.com/nearshoring-to-mexico/#challenges) Let’s get started. ## What is Nearshoring to Mexico? **Nearshoring to Mexico** is the process of a company shifting all or part of its operations from the USA to Mexico. It is very similar to traditional offshoring, where you shift business operations to another country with a low cost of living. And while both nearshoring and offshoring helps you leverage the benefits of lower costs — they have their differences. Here’s a quick look at how nearshoring is different from offshoring for a manufacturing company: - **Nearshoring:** Here, a manufacturing company moves all or a part of its manufacturing operations to a nearby country. For example, if a US company shifts operations to Mexico or Central America, it is called nearshoring. For more info: www.nearshoremexicosourcing.com - **Offshoring:** Here, a manufacturing company shifts operations to a farther away country with a lower cost of living than their home country. For example, if a US company shifts operations to China, it is called offshoring. You also have **reshoring** (also known as onshoring), where factories are relocated from the foreign or neighboring country back to the home country. For example, if a US company shifts manufacturing operations to China or Mexico and then moves operations back to the USA, it is called reshoring. **Which one is better: offshoring or nearshoring?** Well, that depends on your company. It ultimately comes down to the location of the company. If the company has good options available nearby, then nearshoring is the best choice. And of the many [benefits of nearshoring to Mexico](https://biz30.timedoctor.com/nearshoring-to-mexico/#benefits), the country’s low-cost economy and proximity to the United States stand out for nearshoring purposes. ### Why it is the Best Time to Start Nearshoring to Mexico For decades, nearshoring has been an effective way to enjoy the benefits of the low-cost economy of Mexico. But now seems to be the perfect time to start this process. Earlier, [most US manufacturing companies](https://www.forbes.com/sites/kenrapoza/2019/09/03/why-american-companies-choose-china-over-everyone-else/?sh=2187e81771de) preferred offshoring to countries like China in Asia. This was because of the lower labor costs and favorable regulations on offer. However, this is slowly changing. US manufacturers now look for [alternatives to China](https://www.forbes.com/sites/willyshih/2019/08/26/trade-china-supply-chains-trump-ordered-companies-alternative-manufacturing-factories-china/), partly due to the growing tensions between the two countries and [China’s rising labor wages](https://www.forbes.com/sites/kenrapoza/2017/08/16/china-wage-levels-equal-to-or-surpass-parts-of-europe/?sh=4718edb83e7f). To attract foreign investment, countries in Latin America like Mexico, Colombia, Costa Rica, among others, offer greater benefits to these companies. Moreover, with the ongoing [COVID-19 pandemic](https://biz30.timedoctor.com/nearshoring-to-mexico/#business-pandemic), nearshoring is emerging as a more viable option than offshoring. ## 7 Key Benefits of Nearshoring to Mexico Nearshoring to Mexico offers several benefits to manufacturing and other businesses. Here’s a list of some of the key ones: ### 1\. Strong Protection of IP Rights For a country like the USA that promotes innovation, the protection of **intellectual property** (IP) is crucial. American companies that are heavily dependent on their intellectual property contribute to roughly 1/3rd of the employment in the country. US companies receive strong IP protection in Mexico. The [United States-Mexico-Canada Agreement (USMCA)](https://www.international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/cusma-aceum/index.aspx?lang=eng), signed in November 2018, boosted these efforts even further. It was a step to modernize the 25-year-old North American Free Trade Agreement ([NAFTA](https://www.trade.gov/north-american-free-trade-agreement-nafta)). The USMCA particularly highlights intellectual property protection as a [key chapter](https://ustr.gov/trade-agreements/free-trade-agreements/united-states-mexico-canada-agreement/fact-sheets/modernizing) and is sure to boost innovation in all three countries. ### 2\. Low Labor Costs In comparison to the USA, the **cost** **of labor** in Mexico is substantially lower. This is because of the lower average cost of living in Mexico. For example, you can avail the services of a skilled worker in Mexico at the cost of an entry-level worker in the USA. Additionally, the labor cost of China is on the rise. The International Labour Organization’s [World Wage Report](https://www.ilo.org/global/publications/books/WCMS_762534/lang--en/index.htm) estimates that the wages in China more than doubled between 2008 and 2019. That’s why Mexico’s low monthly labor costs are an attractive alternative for US companies as it lowers manufacturing costs. ### 3\. Availability of Talented Workforce Mexico offers a **talent pool** of highly skilled and cost-effective employees. The quality of Mexican labor and higher management employees has been improving consistently over recent years. This is, in part, due to the nation’s improved education standards. Moreover, these individuals are familiar with the culture of both countries and are bilingual. And this helps them respond better to the needs of US companies. ### 4\. Shorter Supply Chain The **Coronavirus** pandemic has hit the manufacturing industry, and strict travel restrictions and have affected the global supply chain. Companies now have to innovate **flexible** **supply chain** solutions. When nearshoring to Mexico, American companies don’t have to worry about the travel restrictions. The borders between the two nations have largely remained open for trade since [March 2020](https://www.mexperience.com/mexico-land-border-restrictions-closure-covid-19/). Moreover, trading with Mexico leads to lower transportation costs and a shorter duration for products to reach the market. This makes nearshoring to Mexico far better than offshoring to faraway nations. ![mexico trade relations with usa](https://biz30.timedoctor.com/images/2021/05/mexico-trade-relations-1024x576.jpg) ### 5\. Favorable Trade Relations With the US Mexico is the largest [trading partner of the USA](https://www.census.gov/foreign-trade/statistics/highlights/toppartners.html). The two countries share strong and favorable **trade relations**, supported by several agreements. The USMCA encourages US companies to set up manufacturing facilities in Mexico. It is an agreement that allows free trade between the three major economies in North America. Now the trade benefits on offer are not limited to Mexican markets. Companies from the United States can access multiple markets in other countries if they set up manufacturing in Mexico. This is because of the [Free Trade Agreement (FTA)](https://www.trade.gov/knowledge-product/mexico-trade-agreements) that Mexico has with other countries. This contrasts sharply with the USA’s tense relationship with China. The [recent trade war](https://www.forbes.com/sites/kenroberts/2020/09/23/the-us-china-tradewar-success-or-failure-the-optics-from-5-metrics/), political disagreements, and the pandemic have greatly affected US-China trade relations. ### 6\. Can Conduct Business Even During the COVID 19 Pandemic Throughout the pandemic, the US-Mexico borders have remained open for trade. Companies with manufacturing units in Mexico were still able to conduct business relatively smoothly. On the other hand, the **COVID 19 pandemic** has made it difficult for US companies to conduct operations in Asian countries where they have traditionally set up manufacturing plants. The coronavirus pandemic may boost [nearshoring to Mexico](https://www.forbes.com/sites/chuckbolotin/2020/05/27/why-mexico-could-be-a-winner-as-a-result-of-the-coronavirus-experience-of-the-us/?sh=73afe2ed60eb), with more US companies preferring to set up operations in Latin America due to the proximity. ### 7\. Availability of Infrastructure When setting up manufacturing units in other countries, it is crucial to find a location with adequate amenities such as electricity, water, transport, etc. In an effort to develop Mexico as a global manufacturing hub, the Mexican government has heavily invested in developing its infrastructure. In 2019 alone, the Mexican government announced a plan to spend over [$40 million on infrastructure](https://www.latlegal.com/2020/10/mexicos-infrastructure-plan-2020-2024/). As a result, Mexico’s developed industrial areas offer basic utilities to attract foreign direct investment from businesses. These steps have drastically improved the manufacturing sector of the country. ## 5 Major Challenges Of Nearshoring To Mexico There are many benefits of nearshoring to Mexico. But there are also certain challenges involved in this process. Let’s take a look at some challenges and how you can overcome them: ### 1\. Understanding Mexican Regulations Companies need to ensure local compliance in their operations. The USMCA has brought in measures to make trade easier by standardizing the laws. However, US companies need to pay attention to the manufacturing compliance regulations that are unique to Mexico. Some of these include: - [Normas Oficiales Mexicanas](https://www.nomexperts.com/what-is-nom-certification-mexico/) (NOMs): Official Mexican standards. - [Normas Mexicanas (NMXs)](http://www.2006-2012.economia.gob.mx/comunidad-negocios/normalizacion/catalogo-mexicano-de-normas): Voluntary Mexican standards. - [Federal Labor Law](https://mexicolaw.com/LawInfo11.htm): Laws governing labor issues. - [Industría Manufacturera Maquiladora y de Servicio de Exportación](https://www.export.gov/apex/article2?id=Mexico-Temporary-Entry) (IMMEX): Tax incentives for US manufacturing companies. Companies need to remain vigilant about these regulations during the process of nearshoring to Mexico. It is recommended to work with a local sourcing agent, to avoid costly pitfalls. ### 2\. Supply Chain and Procurement Concerns Issues in procurement lead to delays in the supply chain and affect operations. And a **supply chain disruption** can lead to strategic losses that negate the cost savings of nearshoring. So it is important to address supply chain challenges early on. Companies often create designated procurement teams that communicate directly with the local contract manufacturers. This helps them fully realize the benefits of nearshoring and avoid sourcing issues. By keeping this team involved at every stage of the process, companies can lower the overall production costs. ### 3\. Adapting Your Company Culture To Mexico When moving operations to a different country, **cultural and language barriers** are very common. If companies are unable to manage these barriers effectively, it can prove fatal to their nearshoring efforts. Although citizens of the USA and Mexico are better positioned to understand each other, it is best to take help from cultural mediators to avoid conflict. Companies need to have reliable and qualified partners who can understand the company culture **and** the local culture. This helps bridge the cultural and language gap between the local employees and the company. ### 4\. Understanding The Costs of Investment Companies need to understand how much it will cost them to set up operations in a new country. Some of the major costs involved in nearshoring are: - **Labor:** Employee wages and perks. - **Logistics:** Costs associated with supply chain management, transportation, tariffs, and import duties. - **Infrastructure:** Costs associated with land, building, utilities like water, electricity, and resources. - **Services:** Fixed and variable costs associated with operating expenses. - **Taxes:** Tax and fiscal obligations on the federal and state level. The goal behind nearshoring is saving costs and increasing profit margins. If the company is unable to achieve this main goal, then the whole activity would be futile. Detailed financial planning and cost accounting before setting up shop often helps companies understand their costs. It helps them to make more informed decisions. Consulting a Mexican manufacturing company to get a better estimate of costs is also helpful. ### 5\. Day-To-Day Management Challenges Nearshoring to Mexico involves administrative costs related to different time zones, managing various office spaces, and tracking employee productivity. Companies from the United States have to **collaborate remotely** with their teams in Mexico. If not done efficiently, this can lead to communication and trust issues. Over time, this can weigh down any company. One of the best ways to manage administrative challenges is to utilize tech solutions for everyday tasks such as communication, task management, and productivity tracking. ## Wrapping Up Nearshoring to Mexico can be a great alternative to other options because of its competitive advantage. The benefits of low labor costs and proximity make Mexico an ideal nearshore partner for American companies. However, companies need to strategically plan to overcome challenges such as Mexican regulations, the cost of investment, and adapting the company’s culture. Use the information covered above to understand where you need to start and help you make a more informed decision. If your company is considering nearshoring to Mexico, then there is no better time than now. Good luck with setting up operations in Mexico! www.nearshoremexicosourcing.com

August 7, 2023

Nearshoring puede fortalecer lazos comerciales entre México y Asia (Español)

Con la tendencia del nearshoring y tratados como el TPP, la relación entre México y Asia debería fortalecerse en el largo plazo. Más que deteriorar los lazos comerciales de México y Asia, la tendencia del nearshoring podría mejorar su relación a futuro. Tanto el (link: https://www.forbes.com.mx/las-empresas-que-dejan-asia-generaran-medio-millon-de-empleos-en-mexico-se/ text: Gobierno federal) como (link: https://www.eleconomista.com.mx/economia/Si-hay-empresas-que-quieran-pasar-de-Asia-a-America-Latina-el-BID-les-financia-el-viaje-Claver-Carone-20211227-0088.html text: agentes internacionales) esperan que operaciones y actividades productivas que ahora se encuentran en Asia, comiencen a trasladarse a México en el transcurso de los próximos años, en una apuesta por acortar las cadenas de suministro y tener un mejor acceso al mercado norteamericano. Esta tendencia de nearshoring está motivada en parte por la guerra comercial que inició entre Estados Unidos y China durante la administración de Donald Trump, así como por las disrupciones logísticas causadas en la pandemia. Sin embargo, expertos han destacado (link: https://macrofab.com/blog/nearshoring-trend-will-mexico-win-over-china/ text: varias ventajas) de México respecto a producir en Asia, incluyendo beneficios en materia laboral y logística. En este contexto, la conversación generalmente se ha dado en términos de (link: https://www.supplychainbrain.com/blogs/1-think-tank/post/32683-the-near-shoring-trend-will-chinas-loss-be-mexicos-gain text: suma-cero), donde lo que gane México en actividad comercial lo perderán Asia y China por la fuga de actividades comerciales. Pero los especialistas en comercio exterior están confiados que la tendencia del nearshoring llevará a un fortalecimiento de las relaciones entre México y Asia. “Lo que se está buscando es traer parte de la producción de Asia a nuestro país, para tener más seguridad en las cadenas de suministro y de producción […]. Y mucha de la inversión es con capital chino. La relación con Asia sigue y se fortalece. Hay una empresa que se está estableciendo en Monterrey y que tienen un capital mayormente chino, que busca establecerse en México precisamente para atender el mercado americano”, apunta Fernando Ruiz Huarte, director general del Consejo Mexicano de Comercio Exterior, Inversión y Tecnología (Comce). Asimismo, no es que México pueda convertirse en un sustituto perfecto de la producción que existe en Asia. Hay muchas industrias que aún no tienen una presencia fuerte en el país y que (link: https://www.arenapublica.com/negocios/complejo-que-nearshoring-traiga-nuevas-industrias-mexico text: requerirán años para poder desarrollarse), por lo que seguirá siendo atractivo para muchos corporativos que atienden al mercado norteamericano mantenerse en China y en países cercanos. También se espera que la relación de proveedor-cliente entre Asia y México se mantenga y crezca en el largo plazo, aún con la tendencia del nearshoring. Entre enero y marzo de este año, el valor de la relación comercial de México con Asia (la suma del valor de las (link: https://www.banxico.org.mx/SieInternet/consultarDirectorioInternetAction.do?sector=1&accion=consultarCuadro&idCuadro=CE85&locale=es text: importaciones) y las (link: https://www.banxico.org.mx/SieInternet/consultarDirectorioInternetAction.do?sector=1&accion=consultarCuadro&idCuadro=CE86&locale=es text: exportaciones)) fue de 61 mil 702 millones de dólares (MD), según cifras del Banco de México. Lo anterior representa 9.7% del valor total de todas las transacciones de México con el resto mundo. Sin embargo, el (link: https://www.banxico.org.mx/SieInternet/consultarDirectorioInternetAction.do?sector=1&accion=consultarCuadro&idCuadro=CE87&locale=es text: saldo) de la balanza comercial México-Asia es profundamente deficitario, con un valor de 31 mil 590 MD durante el primer trimestre del 2022. Lo anterior se debe a que México importa una cantidad importante de materias primas, bienes intermedios y productos semi-terminados que se procesan localmente y luego se envían a otros mercados. Esta dinámica de proveedor-cliente continuaría y hasta se expandiría con el nearshoring. “El mercado va a seguir creciendo, manteniendo las dinámicas que hemos visto hasta ahora […]. Ahorita compramos muchos insumos de China […] y va a seguir manteniéndose esa balanza negativa, porque vamos a continuar como grandes consumidores y procesadores de productos chinos”, dice Jorge Luis Moreno Félix, Managing Director de Deals en PwC. Pero otros especialistas esperan que el momento del nearshoring, junto con las ventajas que traen tratados como el acuerdo Transpacífico (TPP), abra la puerta a que México equilibre y hasta le dé la vuelta a la naturaleza de su balanza comercial con Asia. “Podrías generar más actividad con Asia, la región que será la de más crecimiento económico y de ingreso per cápita de aquí al 2040 […]. Ahí tienes a Japón, Vietnam, Singapur […], Corea del Sur ha dicho que presentará su solicitud", dice Jorge Molina Larrondo, consultor en políticas públicas y análisis de riesgo y catedrático del Tec de Monterrey (ITESM). "[Con el TPP] México podría desarrollar oportunidades [de exportar productos al extranjero] que se están volviendo más difíciles de desarrollar con Estados Unidos”, plantea Molina Larrondo.

August 7, 2023

Nearshore Mexico Sourcing – Help Businesses With Sourcing Services

Why is Nearshore (link: http://www.nearshoremexicosourcing.com/ text: Mexico Sourcing) Better? Here are four main reasons. Less expensive, faster, and more flexible. And it’s all legal! Here are the pros and cons of Nearshore Mexico Sourcing for your next product or service. Sourcing products from Mexico is easier than ever before. Listed below are some of the key benefits of Nearshore Mexico Sourcing. Read on to find out which one is right for you. ## Less expensive The proximity of Mexico to the United States has many advantages for international manufacturers. Not only is the cost of labor and shipping significantly lower, but Mexican manufacturers have better access to a wider range of suppliers. Because Mexican suppliers can better understand your processes and can react quickly to changes, international companies can more easily categorize them by spend and revenue impact. They can also control their inventory and ship products to end consumers in the United States. Because of its close proximity to the United States, nearshore sourcing to Mexico is a more attractive choice for American companies. For example, Mexico is an ideal partner for projects where collaboration and communication are critical. The close proximity makes it easier for teams to communicate with workers at manufacturing facilities. And traveling to Mexico is cheap compared to hiring people across the world. The cost of a dedicated development team in Mexico can also be lower. In addition, some nearshore software development services provide staff augmentation. ## Faster If your company is looking to outsource some or all of its software development processes, Mexico is a great choice. Nearshore Mexico sourcing partners share a common language, culture, and goals with Americans. Their staffs are familiar with the business and consumer cultures of the United States. Additionally, many nearshore contractors speak both English and Spanish. This ease of communication helps build rapport and teamwork. In addition, Mexico has a low cost of labor compared to many U.S. locations. When it comes to nearshoring manufacturing to Mexico, companies benefit from low-cost factory premises and a strong IP protection regime. IP protection is also stronger in Mexico than in many Asian countries. Mexico also continues to invest in infrastructure and improved links with neighboring countries, which increases the potential for overall operational cost savings. Intran’s skilled workforce, for example, ensures high quality for complex product manufactures at a lower cost. ## More flexible Nearshore sourcing in Mexico offers many advantages. Not only is the cost of production lower than the US, but the IP protection is much stricter in Mexico than in some of the neighboring Asian countries. Additionally, the proximity of Mexico to the US makes it easier to find and hire skilled labor. Although there are certain risks, nearshore (link: http://www.nearshoremexicosourcing.com/ text: Mexico sourcing agent) can save companies money on both labor costs and infrastructure expenses. In this article, we’ll discuss the advantages of nearshore Mexico sourcing and how to benefit from it. Another advantage of sourcing from Mexico is its proximity to the US. Nearshore Mexico offers international companies a competitive advantage over China. The country is closely aligned with US time zones, which allows companies to track customer behavior, respond to changes in supply and demand, and trace the supply chain. In short, it’s a win-win scenario for multinational companies. The benefits of nearshore Mexico sourcing are clear. ## Better There are many advantages to Nearshore Mexico sourcing. In addition to its proximity to the U.S., Mexico’s English-speaking population provides excellent technical skills and a strong work ethic. Those factors, coupled with Mexico’s lower cost, make it an attractive destination for software outsourcing. Here are the top three reasons to consider Nearshore Mexico sourcing for your next project. You’ll have more time to focus on business development, and lower travel expenses. ## Conclusion: The proximity to the United States allows companies to hire a qualified nearshore development team. Not only is Mexico close to the US, but its time zone is also the same. This makes conference calls quick and easy to set up. Furthermore, Mexico’s skilled workforce is highly qualified for manufacturing complex products. In addition, the proximity to the US means fewer time differences, a crucial consideration when selecting a nearshore development team.

August 7, 2023

Cuales sectores están aprovechando las oportunidades del Nearshoring en manufactura (Español)

2020 no sólo trajo una pandemia global que golpeó la economía mundial, sino que también dejó reflexiones importantes sobre la fragilidad de la cadena de valor global. Así, la manera en que los sectores de manufactura respondan a esta situación podría marcar su propio futuro y el de la región del mundo donde desarrollan sus negocios. En este contexto, varias empresas trasnacionales han decidido mover su producción para protegerse ante interrupciones de proveeduría, así como para reducir su dependencia a zonas industriales de ultramar como Wuhan (China), lugar de origen del coronavirus SARS-CoV-2. Y aunque ningún país es inmune a sufrir perturbaciones en su ecosistema de producción y logística, México detonó su atractivo como centro de manufactura clave en América del Norte debido a tres situaciones: La entrada en vigor del renovado Tratado México-Estados Unidos-Canadá (T-MEC, antes TLCAN), que dio certeza a los intercambios comerciales y ratificó la preferencia arancelaria para fabricantes establecidos en territorio mexicano. Las tensiones comerciales entre China y EUA y su guerra de aranceles vigente desde 2018. Las ventajas logísticas del país en términos de tiempos y costos de traslado (vía tren o carretera), comparado con los 30-40 días que toma un buque asiático en tocar costas de California. A estos factores se suma el boom mundial del comercio electrónico derivado de las medidas de prevención de contagios y distanciamiento social, y que sigue impulsando la demanda de espacios industriales. Todo esto se conjuga para que, según opiniones recabadas por NAIOP, Asociación de Propiedades Industriales y Comerciales de los EU, algunos fabricantes en México se atrevan a proclamar que “(link: https://blog.naiop.org/2020/07/nearshoring-and-other-manufacturing-shifts-for-the-post-covid-19-world/ text: los beneficios de producir en Asia se acabaron)”, y el nearshoring (relocalización de la producción al país más cercano al mercado de consumo) es la inversión más conveniente tanto por costos como por calidad de manufactura. Sigue leyendo y explora los sectores más beneficiados. ## Nearshoring y manufactura: sectores más beneficiados La industria manufacturera en México es una de las más competitivas del mundo pues, además de ofrecer mano de obra y costos bajos, tiene tecnología y alta calidad. Además, en las últimas décadas se ha incrementado la presencia de fabricantes de equipo original (OEM por sus siglas en inglés), que junto con sus proveedores han establecido plantas en territorio mexicano a fin de aprovechar ventajas estratégicas como: ubicación, amplia infraestructura logística y cadenas de suministro y de exportación consolidadas. Así, los principales clústeres de la industria manufacturera que se benefician del nearshoring en México son de los siguientes sectores: 1. Automotriz y autopartes. 2. Aeroespacial. 3. Dispositivos médicos. 4. Farmacéutico. 5. Electrónica y electrodomésticos. 6. Tecnologías de la información y la comunicación (TIC). ## Automotriz y autopartes En los últimos 10 años, la producción y ventas de la industria automotriz mexicana aumentaron a niveles exponenciales, con un 80% de los vehículos de exportación con destino a los socios de México en el T-MEC, Estados Unidos y Canadá. Además, nuestro país está entre los principales proveedores de partes y componentes en el mundo, es líder global en producción de camiones y vehículos especializados y, por si fuera poco, armadoras como Mercedes-Benz, Volkswagen, Audi, FCA, Hyundai, Mazda, Toyota, Kia, Nissan y Ford han instalado plantas en varias regiones del país. Esto representa oportunidades específicas dependiendo la zona del país, siendo las más importantes: - **Frontera norte.** Cerca del 81% de la producción automotriz de exportación se concentra en 12 zonas metropolitanas del norte de México, incluyendo Tijuana, Hermosillo, Chihuahua y Monterrey. - **Centro-Bajío-Occidente.** Guanajuato, Aguascalientes, Querétaro, Jalisco, San Luís Potosí y Zacatecas concentran un alto número de OEM, así como de proveedores Tier 1 y Tier 2. - **Puebla, Estado de México y Veracruz.** El Centro-Oriente del país ha atraído a fabricantes internacionales de autopartes, elevando su participación en la cadena logística y de proveeduría del sector con corredores industriales destacados como Toluca-Lerma. ## Aeroespacial Los principales clústeres aeroespaciales en México se encuentran en Sonora, Baja California, Chihuahua, Nuevo León y Querétaro. Cada uno de ellos tiene su propia especialización, cadenas de suministro desarrolladas y fuertes vínculos con comunidades, gobiernos e instituciones académicas (la llamada “cuádruple hélice”). Así, el ecosistema aeroespacial mexicano ha crecido año con año, lo que le ha valido recibir más de 3 mil 400 millones de dólares de inversión extranjera directa (IED) durante el periodo 1999-2020. Los países que más invierten en el sector son Estados Unidos (63.9%), Canadá (24.6%) y Francia (7.4%). ## Dispositivos médicos En México hay 8 clústeres principales de prótesis e instrumental médico y quirúrgico, el más grande ubicado en el estado de Baja California y conformado por arriba de 60 empresas. El mercado estadounidense es el principal destino de las exportaciones de esta industria, tercera potencia exportadora a nivel mundial. ## Farmacéutico México cuenta con una de las industrias farmacéuticas más desarrolladas de la región, con más de 200 empresas incluyendo reconocidas firmas multinacionales. Aunque los clústeres más grandes se encuentran en Ciudad de México y Jalisco, el Estado de México, Puebla y Michoacán también tienen una huella importante. Y en 2021, el estado Hidalgo firmó convenios con 6 productores de la India para impulsar un nuevo clúster de medicamentos genéricos. ## Electrónica y electrodomésticos México cuenta con 8 y 6 clústeres de fabricación de aparatos electrónicos y electrodomésticos, respectivamente, repartidos a todo lo largo y ancho del país. Baja California, Coahuila, Nuevo León y Estado de México son los estados con mayor presencia de fabricantes de ambos sectores, que realizan exportaciones a todo el mundo. ## Tecnologías de la información y la comunicación (TIC) Con un valor de 13 mil 700 millones de dólares, México tiene el segundo sector tecnológico más grande de Latinoamérica, sólo detrás de Brasil. En 2018, México fue el 2° exportador de dispositivos para transmisión/recepción de voz, imágenes u otros datos, incluyendo dispositivos de comunicación inalámbrica o radio (excepto celulares). Sus principales destinos de exportación fueron Estados Unidos, Hong Kong, Malasia, China e Israel. ## T-MEC: impulso a las inversiones de manufactura A la fortaleza de cada rama manufacturera y las ventajas productivas de México se suma la certidumbre del T-MEC, que refuerza la relación trilateral del anterior TLCAN y al mismo tiempo crea nuevas oportunidades de inversión con disposiciones como: 1. Acceso libre de impuestos al mercado mexicano. Al invertir en operaciones de ensamblaje y manufactura ligera, fabricantes extranjeros obtienen reducción de costos, menos trámites y previsibilidad en transacciones transfronterizas. 2. Reglas de origen. OEM y proveedores se benefician de los aumentos al valor de contenido regional de 75% en automóviles y 70% en camiones ligeros y pesados, respectivamente. Además, las disposiciones relativas al contenido laboral e investigación y desarrollo van más allá de las reglas de origen de acuerdos comerciales tradicionales. 3. Seguridad para la inversión. El T-MEC ofrece un marco jurídico transparente, predecible y propicio para las inversiones, incluyendo mecanismos para la solución de controversias. 4. Comercio de servicios. El texto del T-MEC establece que las Partes no impondrán barreras que distorsionen el intercambio transfronterizo de servicios (por ejemplo, la obligación de tener una oficina física). 5. Comercio digital. El capítulo 19 del T-MEC establece que los productos digitales transmitidos vía electrónica serán libres de impuestos, y reconoce el valor de las plataformas digitales para mejorar la disponibilidad de bienes y servicios, entre otras ventajas. 6. Protección de la propiedad intelectual. El T-MEC garantiza la transparencia y la protección de patentes e innovaciones tecnológicas mediante un marco jurídico completo. << (link: https://blog.frontierindustrial.mx/nearshoring-en-mexico-ventajas-ahorros text: Nearshoring en México: ventajas y ahorros para empresas extranjeras) >> En Nearshore Mexico Sourcing respaldamos las oportunidades de negocio que se generan a través del *nearshoring* en México y la regionalización de las cadenas de suministro. Por eso, nuestro portafolio industrial ofrece servicios de Sourcing en Mexico.

August 2, 2023

Large Portions of offshore manufacturing may soon be returning

A study from Nearshore Mexico Sourcing, shows that large portions of offshored manufacturing may soon be returning thanks to companies combining their nearshoring production to Mexico, Central America, and even Canada, with manufacturing and assembly in the United States. A unique barometer for tracking the extent to which America is reshoring manufacturing back from low-cost countries, US imports of manufacturing goods from the tracked countries totaled 14.49 percent of US domestic gross manufacturing output, up from 12.95 percent in 2020. Instead of simply reshoring every manufacturing facility to the USA, Nearshore Mexico Sourcing takes a look at “nearshoring” manufacturing, where certain aspects of manufacturing are set up closer to the US. Redefined, reshoring is likely to catch on faster in some industries than it does in others. “We are seeing a significantly increased focus from apparel, furniture, footwear, home decoration, appliances and automotive companies on finding reshoring and nearshoring opportunities as a way to both mitigate supply chain disruptions and increase sustainability."

August 2, 2023

Moving Production from China and Taiwan Matters More Than Ever

Many who read this will wonder why it needs to be written. After all, wouldn’t it be obvious? But I have it on good authority from those in the supply-chain-sourcing trenches that most companies do not consider geopolitical risk when choosing countries to source from. Successful companies spend a great deal of time and attention going into excruciating detail following all the microtrends within their own industries in order to identify opportunities as well as risk as they seek to grow their companies. And it is absolutely mission-critical that they do so. But we must not lose sight of the bigger picture concurrently. Geopolitical and geoeconomic events that are far more powerful than any of the industry trends can render all the microplanning moot. The trouble is that most of us don’t foresee them: for instance, the financial meltdown, the coronavirus pandemic and even Russian’s invasion of Ukraine. As a sign in a gas station in my hometown said: “One aw-s**t wipes out all atta-boys” Today, there is one potential geopolitical threat on our horizon that would have massive detriment to both the global economy and individual companies. This threat is foreseeable and in an instant would make all the detailed industry-sector-level strategic planning moot. With tremendous reliance on China and Taiwan, the West’s supply chains are at high risk if any form of conflict erupted between the U.S. and China, or between China and Taiwan. A China-Taiwan crisis would make the western economic impact of the Russia-Ukraine war look like a drop in the ocean by comparison. We all chased the lowest price on one item after another until the number of items was massive and our reliance on them became critical. And I must confess I was a young analyst at the time supporting outsourcing to Japan in the 1980s, and China after that. And hence I was part of the problem. Imagine if a hot war resulted in some semiconductor manufacturing plants being destroyed. In World War II, bearing plants were key targets because literally anything in a conventional armed conflict requires bearings. Bearings then are like semiconductors today. Destroy them and there are no new smart weapons, and civilian manufacturing in the west ceases, too—as happened in certain sectors with the recent semiconductor shortage. And it isn’t just semiconductors—it is every single part that Western companies source from China and Taiwan. They would all be at risk. Or imagine more of a standoff, in which the U.S. goes to Taiwan’s aid to resist China’s coercion to reunite, so the U.S. Navy blockades the sea lanes from China and Taiwan to the western countries and mines critical pinch points. In that scenario, even though there is no hot war, container ships cannot make it through, crippling Western supply chains for all goods. It would not be economical to fly every single part over the naval blockade—and there could be no-fly zones as well. ## What Can be Done? But there is something Western companies can do to prepare for this, even though we have no way to know for sure if or when it may occur. And while it would take a lot of focus and effort, it is absolutely achievable. The typical design for a manufactured part has a five-to-seven-year lifecycle, and then that specific part either is never made again or replaced by a new-and-improved design. I implore company boards of directors and chairmen/CEOs to instruct their supply chain leaders to put together a plan to completely be out of China and Taiwan within 10 years. And not only do you need to stop being dependent upon China and Taiwan directly—you also need to make sure that your non-Chinese and non-Taiwanese suppliers are not dependent on Taiwanese and Chinese sub-suppliers that could also shut them, and thus you, down. It isn’t that hard in concept, just a lot of work. Simply set a date after which absolutely no new design or replacement design part will be allowed to be sourced from China or Taiwan, and all currently sourced products will phase out before that time frame is over. Even if things go bad sooner, you will have less exposure than you would have if you simply hoped for the best instead. This approach is so much preferable and less resource-intense than if one sought to re-source currently sourced products. These resources will need to be focused upon identifying new sources outside of the larger sphere that China might threaten as part of such a scenario. Some manufacturing might come back to the U.S., but more likely to Mexico. And any higher piece-price will have to be considered the insurance premium for avoiding the worst-case scenario. In the worst case, if companies move out of China and Taiwan but nothing happens at the geopolitical level, then supply chains will have been made more robust for the long-term through more nearshoring and onshoring. We are very fortunate that the amount of supply chain dependency on Russia and Ukraine, with the exception of energy and grain, is very minimal. Let it be a reminder that bad actors are all around us, just waiting for their turn to strike. The journey of a thousand miles begins with the first step. If we don’t start now with the first steps, we will be in a situation like Europe is now—addicted to and dependent upon oil and gas from Russia. Take that first step, and the steps after that.

August 2, 2023

Nearshoring, What US and Canadian Companies Need to Know when Moving to Mexico

Ready for a more efficient, cost-effective way to manufacture high-quality products? Here’s everything you need to know about (link: https://napsintl.com/mexico-manufacturing-news/why-are-us-companies-manufacturing-in-mexico/ text: moving your manufacturing to Mexico). ## Why Are Companies Relocating to Mexico? Now one of the world’s top manufacturing locations, Mexico offers U.S. companies significant benefits that give them a more competitive edge over other global manufacturers. Read more to learn about moving your U.S. company to Mexico. **STRONGER SUPPLY CHAINS** You’re always looking for ways to strengthen your supply chains. However, in the face of COVID-19 and rising taxes and tensions in China, rethinking your supply chains is perhaps more critical than ever. Luckily, Mexico’s close proximity to the United States means manufacturers don’t have to deal with managing long, complex supply chains that are prone to disruptions, many of which are still being affected by the COVID-19 pandemic. **LOW TRADING COSTS** Mexico’s proximity to the United States doesn’t just have logistical advantages. It also offers manufacturers significant cost-savings benefits. Companies with markets in the United States no longer need to worry about the high costs of overseas transportation and can take advantage of Mexico’s robust ground transportation infrastructure. Even companies with overseas markets have access to large international air and sea ports. To further reduce costs, companies manufacturing in Mexico are able to import raw materials tax-free when they operate under the country’s IMMEX program, which exempts foreign manufacturers from VAT taxes, as long as their materials are exported as a completed product within a specific timeframe. **TALENT AVAILABILITY & LOW LABOR COSTS** As wages rise and the labor pool slowly declines, China is losing some of its biggest manufacturing advantages. Mexico, on the other hand, has an abundant, highly-skilled workforce and has invested heavily in higher education and technical training, graduating over 100,000 engineers each year. Plus, wages have remained relatively stable and are significantly lower than in the United States. As a result, more and more companies are setting up manufacturing facilities in Mexico, not only boosting the revenue of U.S. companies but stimulating the Mexican economy as well. ## Key Factors to Consider When Moving Your Manufacturing While there are many different factors you’ll need to consider in your planning, here are two of the most critical you need to know in order to set your business up for success in Mexico. **LOCATION** Not all locations are created equal in Mexico. Because of the country’s long history of manufacturing, different regions are usually well-suited for specific (link: https://napsintl.com/manufacturing-in-mexico/industries-in-mexico/ text: manufacturing industries). Automotive manufacturers, for instance, often benefit from (link: https://napsintl.com/manufacturing-in-mexico/mexico-manufacturing-locations/manufacturing-in-monterrey-mexico/ text: manufacturing in Monterrey), the capital of the Nuevo Leon Region. Full of automotive industrial parks, manufacturers gain instant access to critical resources and local supply chains. Given the importance of choosing the right location, many American companies moving their manufacturing to Mexico will outsource to experts like NAPS to assist in the (link: https://napsintl.com/services-in-mexico/site-selection/ text: site selection process). Together, we won’t just find the best city for your industry. We’ll work with you to find the perfect real estate according to your unique operations. **BUSINESS MODEL** There are many modes of entry into Mexico, and you’ll need to choose the one that works best for your business. Some of the most common strategies include: - Standalone model: Best fit for those looking to maintain 100% control of their business, this model requires companies to establish their own legal entity. - Joint Venture: This model involves two businesses combining to form a cooperative that shares everything from resources to risks and rewards. - Shelter model: This model is unique to Mexico and allows businesses to set up their manufacturing operations underneath an already established Mexican entity. ## Support Services for U.S. Companies in Mexico Many companies have chosen to take advantage of our wide range of administrative and compliance services, which offer everything you need to find long-term success in Mexico while maintaining complete control over your production. Here’s a glance at how we support you. **HUMAN RESOURCES** From recruiting to training and talent management, we meet all of your human resources and recruitment needs while helping you navigate Mexico’s complex labor laws. **TAX & ACCOUNTING** Tax laws in Mexico are highly complex, too. With NAPS, you get a team of experts handling your payroll, tax compliance, social security, and more so you can get back to focusing on your production. **MATERIAL SOURCING** If you’re looking to source materials or services within Mexico, we’re ready to help you find exactly what you need by locating the highest-quality vendors at the best prices. **IMPORT/EXPORT** Take full advantage of Mexico’s IMMEX and USMCA tax benefits by working with NAPS. We’ll help you optimize your import and export process while ensuring you stay fully compliant with all rules and regulations.

August 2, 2023

Legal implications of doing business in Mexico

Doing business in Mexico may be just what your company needs to prosper, with lower wages for skilled workers and lower transportation costs since Mexico is situated closer to the US and Canada, than, China or India for example. Location also ensures faster production turnaround time, not to mention ease of communication, and similar time zones. Since, Mexico is a part of the USMCA (formerly known as "NAFTA"), between Mexico, Canada and the United States there are many benefits to doing business in Mexico. USMCA eliminates tariffs between the countries and has built in agreements and legal processes, with international rights for business investors. Foreigners can own 100% of a Mexican corporation and open their business in Mexico. Mexico’s legal system and tax laws for businesses do not discriminate between foreigner business or Mexican National owned businesses. Owning a business in Mexico can be a lucrative initiative, but make sure you have a Mexican Law Firm to represent you and your company, they will help you setup your business in Mexico, a specialist like (link: http://www.nearshoremexicosourcing.com/ text: www.nearshoremexicosourcing.com) can provide important guidance through, creating a corporation, advising you on Mexican labor law, Mexico tax laws, and all red tape that goes along with doing business in Mexico. Anyone who has begun the process of opening a business in Mexico can not stress enough the importance of using a lawyer, you will need to deal with all business aspects, zoning and building permits, taxes, environmental regulations, and even your own immigration status. Business entity options are similar to the rest of North American including, Public Limited Company or Corporation (Sociedad Anonima (S.A.) which either have fixed or variable capital. This entity will have at least 2 board members and an unlimited amount of shareholders. This type of company is required to have an accounting firm that will ensure the proper management and legal aspects are taken care of. Limited Liability Company (Sociedad de Responsabilidad Limitadada (S.de R.L.) either fixed or variable capital. This entity must have at least 2 partners, but no more than 50. It is not required to have an accountant. Sole Trader (Persona Física con actividad empresarial) An individual with a business using their own name for the business and tax purposes. You are only one shareholder and solely liable. Professional Service (Sociedad Civil (S.C.) consultants, translators, lawyers or accountants type of business. No minimum capital is required. NonProfit (Asociacion Civil (A.C.) charities and organizations The most common being corporations and limited liability companies, a professional legal team can help you assess which option is best for your business and which will give you the most operational benefits. ## Mexico’s Labor Law It is important to familiarize yourself with Mexico’s labour laws. Foreigners doing business in Mexico need to be cautious of their hiring practices and the labour laws of Mexico. Mexico has strict labour laws in place to protect the employees, but a Mexican law firm can help you make sense of the labor laws of Mexico. As an employer, it is in your best interest to have boots on the ground through a specialist, such as www.nearshoremexicosourcing.com, to learn your rights as an employer, to develop employee contracts (which is your best defense if you end up in litigation with an employee) and learn your best practices for hiring and dismissing staff. You will receive advice on what is legally expected from you as an employer to ensure you have happy, productive staff and avoid having issues with the labor board. All conditions and expectations must be documented in an employment contract between the worker and the employer. Any disagreement between the two will result in the employer being required to prove his case against the employee. Labor laws can change with each state and update without notice. As in Canada and the US, there are many labor laws involving, child labor, discrimination, harassment, maternity leave, profit sharing, overtime, yearly wage negotiation, vacation days, and union regulations if applicable. Depending on the business you open, you may be required to pay corporate tax, tax on dividends, asset tax, value added tax, and payroll taxes. MexLaw can provide accounting services for your business to help you get the most from your investment. ## Good To Know - Mexico has a strong tax treaty with the US and Canada, which provides relief from double tax on all income - If you are not a permanent resident in Mexico and you want to do business in Mexico you are required to make a declaration to the Mexican Institute for Foreign Investment. - Always negotiate your sales contracts and the credit terms carefully, using a qualified lawyer, and purchase receivables insurance to protect yourself against possible non-payment loss. - Terminating an employee can be very complicated and costly in Mexico, it is important to have a lawyer layout all the labor laws and regulations to avoid an ex-employee appealing their dismissal to the labor review board. - By forming a Mexican corporation you are able to purchase property in a restricted zone without a fideicomiso.

August 2, 2023

Doing business in Mexico

Mexico, a commodity producer and manufacturing hub, is poised for post-pandemic growth, thanks to a rise in nearshoring opportunities, the growing sophistication of manufacturing, and an alignment with social and environmental considerations. ## Trade and economic overview Following a sharp contraction in 2020 and weak growth last year, Mexico’s economy is projected to expand by 3.3% in 2022 and 2.5% in 2023, according to the Organisation for Economic Cooperation and Development (OECD). “With an increasing share of the population vaccinated and the improvement in the labour market, consumption will be a key growth driver. Exports will continue to benefit from deep integration into value chains,” reads an (link: https://www.oecd.org/economy/mexico-economic-snapshot/ text: OECD Economic Outlook), published in December 2021, which notes that Mexico’s economy has broadened, with activity trending up in agriculture, industry and services. Among Mexico’s strengths, as outlined by credit insurer Coface in a (link: https://www.coface.com/Economic-Studies-and-Country-Risks/Mexico text: July 2021 economic study), include its geographic proximity to the US, free-floating exchange rate, substantial industrial base, and large population with a relatively low labour cost. This, Coface says, is offset by weaknesses including high income disparities and an oil sector that has been undermined by years of underinvestment. As Mexico continues its recovery from the pandemic, some of the factors expected to cement the country’s status as a high-growth market include its membership of the recently signed US-Mexico-Canada Agreement (USMCA), its position as a (link: https://ustr.gov/countries-regions/americas/mexico text: top US trading partner), as well as opportunities for nearshoring as companies diversify their global supply chains. “We expect trade in Mexico in 2022 to continue growing. Demand from the US remains strong and domestic demand is also on a recovery trend,” says Eduardo Allegre, Director & Business Head Trade Working Capital at Citibanamex. ## US trade relations and nearshoring opportunities Mexico’s geographic proximity to the US is a boon to its competitiveness. The Latin America nation accounted for (link: https://www.census.gov/foreign-trade/statistics/highlights/toppartners.html text: 14.5% of total US trade last year) as of November. Trade volumes between the two countries are expected to (link: https://www.usitc.gov/publications/332/pub4889.pdf text: grow even further) as the USMCA, which replaced the North American Free Trade Agreement (NAFTA), is fully implemented. “Although it took some time to negotiate, Mexico was the first country to sign and ratify the USMCA deal. This can indicate that the Mexican government is serious about boosting exporting activity and that it acknowledges trade as one of the most important generators of foreign exchange,” says Allegre. Amongst a range of measures, the USMCA strengthens environmental and working regulations and incentivises domestic vehicle production. Crucially, it also updates intellectual property (IP) legislation, which authorities hope will incentivise innovation and technical development in industry. “The IP chapter could be a game changer for Mexico by strengthening its supply chains, increasing industrial productivity and facilitating innovation,” says Andre Carvalho, Head of Trade, Latin America, Treasury and Trade Solutions at Citi. “It establishes clear rules and creates long-term certainty, making Mexico more attractive to firms looking to invest in the country. This can be especially beneficial to US companies, who might need that certainty and protection around IP and trademarks for their nearshoring efforts.” The country has long been a manufacturing hub, with prominent industries including automotive, aviation, medical devices, and electronics. In 2019, Mexico was the sixth-largest country of origin for the US’ aerospace and defence imports, at US$3.2bn – well ahead of China, in 10th place, at US$1.3bn, according to a (link: https://www.aia-aerospace.org/wp-content/uploads/2020/09/2020-Facts-and-Figures-U.S.-Aerospace-and-Defense.pdf text: report from the Aerospace Industries Association). It is this high-value manufacturing potential as well as Mexico’s proximity to the US market and relatively low labour costs that continues to encourage international organisations to set up in the country in the wake of ongoing US-China trade tensions and pandemic-related disruptions, which have forced firms to consider shortening their supply chains. (link: http://www.nearshoremexicosourcing.com/ text: http://www.nearshoremexicosourcing.com) offers support to OEMs and Brand Owners looking to diversify their supply chain by transferring production from Asia to Mexico. ## Sustainable development President Andres Manuel Lopez Obrador has put social policies and programmes aimed at improving the lives of Mexicans (link: https://www.business-humanrights.org/en/latest-news/mexico-president-announces-expansion-of-social-programs-and-job-creation-in-response-to-the-covid-19-crisis/ text: at the core of plans) to offset the economic fallout from the pandemic. Over the years the country has also rolled out a series of environmental policies. It is a signatory of the Paris Agreement, was one of the first countries in the world to pass a specific law on climate change and is a “leading international actor on environmental policy in the region”, according to the (link: https://www.sgi-network.org/2016/Mexico/Environmental_Policies text: Sustainable Governance Indicators). “The government is really trying to push the social and environmental agenda, both in terms of its own spending efforts as well as the engagement of the wider business environment, which is helping to increase awareness of environmental, social and governance (ESG) issues,” says Carvalho. In 2020, the Mexican Stock Exchange BMV and S&P introduced a new ESG index, designed to measure the performance of stocks that meet sustainability criteria, which Carvalho says was a “very strong message” to companies about the need to align themselves with best practices. He further notes that ESG has become a “critical piece” in supply chain finance request for proposals in the country. “Certain Mexican public companies, and more recently private firms too, have shown their commitment and alignment with ESG issues including social pressures, the scarcity of natural resources and the pressures of climate change,” says Allegre. “This has led financiers to start incorporating these factors into their lending and risk evaluation models. At Citibanamex we realised this opportunity and have been working with our partners to ensure we adopt ESG trends in our risk criteria.” Much of the bank’s focus to date has been on the social element of ESG, particularly on securing access to financing and financial education for Mexico’s small and medium enterprises (SMEs), or pequeñas y medianas empresas (PyMES) in Spanish. There are upwards of 4 million SMEs in Mexico, (link: https://www.oecd-ilibrary.org/sites/c2314a63-en/index.html?itemId=/content/component/c2314a63-en text: according to the OECD), which notes that in 2018 the average interest rate for large companies was approximately 11.8%, while for SMEs it was 17.7%. “Although the government in recent years has developed various initiatives to support entrepreneurs and strengthen the access to finance for SMEs, their needs are still not being met. What we have also discovered within the world of trade is that for many of the smaller suppliers, their financial acumen is often not particularly strong,” says Allegre. In response, Citi has not only boosted access to supplier finance programmes but has also rolled out a financial education programme geared towards SMEs – the suppliers to the bank’s large corporate clients. “We’ve found that these education programmes provide great value to suppliers by guiding them on how best to manage their finances. The financial inclusion aspect is very important to us and is an example of how the bank is joining in on driving the social agenda,” says Carvalho. ## Financing needs As Mexican companies position themselves in a post-pandemic world, they continue to prioritise working capital optimisation strategies – another area that the bank is keen to support. “CFOs are looking to supplier financing and receivables financing as ways to enhance the cash conversion cycle and optimise balance sheets, and there’s been a great deal of activity in the last few years,” says Allegre. “There really is a strong opportunity for Citi to support our clients in this regard and boost their trade activity so that they may take advantage of all the new prospects available to them in Mexico.”

August 2, 2023

Why More Companies are Nearshoring to Mexico

Many companies are recognizing the substantial benefits associated with nearshoring their operations. Seen as an increasingly promising alternative to (link: https://napsintl.com/mexico-manufacturing-news/what-are-outsourcing-and-offshoring/ text: 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. ## What is Nearshoring? 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 (link: https://napsintl.com/mexico-manufacturing-news/the-changing-landscape-of-manufacturing-in-mexico/ text: manufacturing in Mexico). ## Manufacturing Strategies Overseas or Locally 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: Offshoring: This is the act of taking the original location of a factory or team, and moving it to a lower-cost economy to produce that good or service. Reshoring: This term will be used interchangeably with “Onshoring” which means relocating the factory from the foreign or neighboring country back to the domestic country. Nearshoring: This term is used to signify when a company moves all or some of its manufacturing operations to a nearby country where the goods will be sold. For example, in North America, some United States-based companies use Mexico as a nearshore destination for their manufacturing operations. ## Top Benefits of Nearshoring to Mexico 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: - IP Protections – Intellectual property is critical to the US economy, with industries that intensively rely on IP contributing to roughly 30% of U.S. employment and 52% of merchandise exports according to 2014 data from the Department of Commerce. That number has certainly only continued to grow over recent years. Yet concerns over IP protections have increasingly taken the forefront of foreign policy negotiations and is perhaps the most important challenge facing multinational corporations with manufacturing in China. Thanks to the recent passage of the USMCA as well as a long history of taking on IPR protections through international agreements, US companies are given much stronger protections for their (link: https://napsintl.com/mexico-manufacturing-news/understanding-intellectual-property-rights-in-mexico text: intellectual property rights in Mexico). - Lower Cost of Labor – The labor cost remains low in Mexico compared to the United States, while the minimum monthly wages have steadily been increasing in China. Rising labor costs in China have forced multinational corporations to begin looking elsewhere, and for U.S.-based companies, Mexico offers an attractive alternative as a nearshore outsourcing partner. - Shorter Supply Chain – One of the most visible impacts of the COVID-19 pandemic has been the precariousness of supply chains in a globalized manufacturing world. This has forced many companies to explore alternative supply chains that are shorter, more flexible, and in closer proximity. Added advantages of a shorter supply-chain are reduced freight costs and faster time-to-market for products. - USMCA and FTAs – The recently enacted United States-Mexico-Canada Agreement (USMCA) heavily incentivizes businesses based in the U.S. to take advantage of manufacturing in Mexico. Along with the advantages that the USMCA brings, a businesses operation in Mexico gains access to numerous markets that Mexico has entered Free Trade Agreements (FTAs) with. Whether you are curious about the impact of USMCA on duty-free imports, (link: https://napsintl.com/mexico-manufacturing-news/how-does-section-321-de-minimis-apply-to-you/ text: Section 321), and more, make sure you are ready and have all the information you need for moving your manufacturing to Mexico. ## Why Now? 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. ## USMCA Do you know the difference between (link: https://napsintl.com/mexico-manufacturing-news/what-changed-from-nafta-to-usmca/ text: 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. ## COVID-19 The impact of the COVID-19 created a (link: https://napsintl.com/mexico-manufacturing-news/effects-of-covid-19-on-the-international-supply-chain/ text: 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, (link: https://napsintl.com/about-naps/contact-us/ text: contact us) today.