Nearshoring could unlock a $500 billion export opportunity for Mexico

If Mexico makes a concerted effort in nearshoring its manufacturing supply chains, the country could significantly accelerate growth. The results could see the value of its exports reach $500 billion by 2030, according to a report from Bain & Company.

Traditional value chains have been severely affected by recent global disruptions, from the Covid-19 pandemic to stubborn inflation, ongoing geopolitical tensions, the threat of tariffs, and now the evolving semiconductor crisis. All of these issues have driven companies to take a hard look at their supply chain resilience.

Now, Mexico might be missing a major opportunity in nearshoring. That is despite the country managing to score major investments in the manufacturing industry – including a $380 million Yokohama Tire Corp truck tire plant, as well as other major investments from Walmart, Maersk, and Amazon, among others.

If manufacturers in Mexico manage to overcome the main bottlenecks that have been impeding nearshoring and take advantage of the country’s strategic location to gain a competitive edge over Asian exporters, the industry could see 9% average annual growth up to 2030, rather than the expected 7%.

Mexico’s nearshoring challenge

For Mexico, nearshoring represents a unique opportunity, according to Bain & Company. “It can drive economic growth, industrial activity, and the country’s relevance in the commercial ecosystem even further thanks to its proximity to the US, its solid manufacturing base, and the existing trade agreements,” said Jordi Ciuró, partner in Bain & Company’s Mexico City office.

Some examples of the potential on export manufacturing activity include better job opportunities for Mexicans, the formalization of small and medium-sized businesses, and growth in the demand for export-associated services.”

The reality is that Mexico has fallen behind other emergent manufacturing hubs like India, Thailand, and Vietnam, which have all been seeing faster growth in exports to the US. While Mexico is the US’s largest trading partner, growth in the volume of exports has slowed since 2015 when compared with competitor countries.

There are various reasons why companies operating in Mexico (or companies that plan to relocate there) struggle to seize the maximum potential of nearshoring.

One major challenge, for example, is infrastructure: Despite enjoying a strategic location globally, Mexico’s roads, ports, and railways, especially intermodal connectivity, require significant investment before being truly up to the task of keeping up with manufacturing demand. There are also challenges related to reliable power generation and water supply.

Mexico also struggles to maintain a healthy supply of talent for the manufacturing workforce. The sector has been experiencing a shortage of qualified workers with advanced skills, such as technicians and engineers.

“To address this, it is crucial to promote collaboration between the government, universities, and the private sector in developing technical education opportunities and professional training programs, improving the educational infrastructure, and conducting awareness and career guidance campaigns,” said Ciuró.

Other obstacles to more nearshoring include security issues related to Mexico’s reputation for high levels of crime, which has a big impact on costs.

There is also the need to stay competitive: Though Mexico is currently cost competitive versus other US trade partners, a number of factors will increase pressure on costs in the near term. If they are not compensated with improvements in productivity, it would significantly affect the country’s competitiveness as a manufacturing and exports hub.

“Nearshoring offers an extraordinary opportunity for Mexico, promising economic growth, the creation of employment, and a greater global competitiveness. However, to seize this opportunity’s maximum potential, it is crucial to address several challenges,” noted Ciuró.

“With strategic planning, adequate investments, and collaboration between the public and private sectors, Mexico can position itself as a leading nearshoring destination. The moment to act is now, before this opportunity fades away.”