Nearshoring: How Mexico benefits from supply chain disruptions in the pandemic

Supply chains as we knew them just a few years ago have been hit hard by the pandemic. Measures to contain the spread of the virus have had a particular impact on the functioning of supply chains. In addition, failures in shipping routes have caused global supply shortages.

The complexity and dynamics of supply chains operating at multiple levels of the economy expose them to a variety of risks. Interdependencies between the different parts of a supply chain system can lead to difficulties. In a complex system, each entity manages its operations differently. This can often lead to conflicts between supply chain actors. One solution to avoid these problems is to shorten supply chains. So-called “nearshoring” is a strategy in which companies move part of their production to another country, as in traditional outsourcing. The distinctive feature here is that it is a nearby location.

Mexican manufacturing has reached a high level of specialization, capacity and experience, especially in recent years, so that large companies from the automotive, aerospace, electronics and medical industries are present in Mexico, attracting new secure investments.

On the American continent, until recently, Asian countries were considered the most important and rewarding offshoring destinations. However, the pandemic is increasingly changing that. The U.S. in particular sees Mexico as the perfect location for opening more and more production facilities with shorter delivery routes. In addition to the close proximity of the two countries, the free trade agreement between Canada, the U.S. and Mexico facilitates trade in this region. Although labor in Mexico is not as cheap as in Asia, the cost savings from the significant shortening of supply routes is still significant. Likewise, future transportation risks are almost completely eliminated, and communication problems due to large time differences are minimized. In addition, the ongoing trade conflicts between the USA and China are no longer a problem. Even before the pandemic, they led many companies to establish new business relationships elsewhere.

Do you have further questions about current economic developments in Mexico? Do not hesitate to contact us!