Is nearshoring a good business for Mexico

Mexico, a Latin American country preferred by US companies to move its production, can attract new investments and generate jobs thanks to nearshoring.

Everyone knows that the industries of developed countries, mainly the United States and Europe, have been taking their total or partial production process to low-cost labor, such as Southeast Asia. 

This practice is known as “off-shoring” came from the hand of globalization, which transformed economies throughout the world during the 80s, 90s, and 2000s. The globalizing phenomenon impacted many areas within the value chain of organizations, but especially in the management of supply chains and manufacturing.

But today, in the midst of a new global context of trade wars, although this process is still happening, the pace of cases has slowed. In fact, companies are creating new alternatives for the management of their production such as relocation in the countries of origin, known as “reshoring”, or in countries that are in close proximity, which is called “nearshoring”.

Among others, the reason for this change is that new technologies in developed and emerging countries will generate innovation with greater productivity, which allows them to develop products that were not possible before, redesign existing products or create new products from scratch. 

Artificial intelligence, machine learning , additive printing, communication systems, the internet of things (IoT ) and big data management ( Big Data ) are redesigning the manufacturing landscape in developed and emerging countries causing a change in the “what”, “how”, “when” and “where” is manufactured.

Therefore and according to the ” Reshoring Initiative Report, 2017″ the nearshore represents approximately 22% of all cases of reshoring US. And it is that European and American companies increasingly prefer to produce in close proximity to the site where the parent company is because of its advantages in terms of costs, business strategy, but especially technology. 

So and according to the report “Made in Spain again? From EAE Business School, companies that perform reshoring and nearshoring have a higher degree of technological innovation, compared to companies that perform offshoring. 

This situation positions Mexico in a privileged situation compared to other Latin American countries since, according to the same study, Mexico is, together with Canada, the main destination of American companies to perform near-shoring. Therefore, according to the 2017 Reshoring Initiative Report, imports from Mexico to the US carry 40% of components produced in the US, while imports from China only 5%.

This trend may generate, in the coming years, a positive impact on the Mexican economy and in terms of job creation. But it also demands challenges for the country. 

At the governmental level, it is important that Mexico establish systematic measures to control reshoring and nearshoring activities in order to offer companies assistance that will facilitate the process of relocating their production centers. 

But in addition, Mexico must bet on the education and preparation of the workforce in emerging technologies, the main factor that influences the decisions of the location of companies in one or another nearby country and that is key to offering more productivity levels Stop the companies that choose this country.

 Marcelo Leporati

* The author is Professor and Director of the Strategy, Entrepreneurship and Innovation area of ​​EAE Business School.

Source: forbes mx, mhlnews

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