In recent years, the Nearshoring trend has put Mexico on the radar of multinationals looking to cut costs and optimize their supply chain. Its proximity to the United States, competitive labor, and broad network of trade agreements make it a strategic partner for international trade.

What is Nearshoring?

Nearshoring is a business strategy in which companies move their operations, especially manufacturing and services, to countries close to their main market. This makes it possible to reduce logistics costs, improve delivery times, and mitigate risks associated with the supply chain.

Mexico’s qualities for Nearshoring

Mexico’s benefits for the Nearshoring phenomenon can be reduced to three basic factors: first, its relationship and proximity with the United States; second, attractive labor costs; and finally, a large network of trade agreements.

Relationship between Mexico and the United StatesWithout a doubt, the most important factor is the proximity between the two countries, sharing more than 3,000 kilometers of border and notably simplifying the transport of goods compared to China. On average, cargo from China can take up to 26.5 days to reach a North American city, while in the case of Mexico it takes between 0.3 and 3.5 days. In addition to geography, Mexico and the United States share a long history of commercial partnership, such as the USMCA they share with Canada. Another key factor is the identity of the population, since the cost companies face informing themselves, educating themselves, and adapting to the local dynamic can be drastically reduced thanks to the interaction that already exists between Mexico and the United States.

Labor cost in Mexico

When companies seek to establish part of their production outside their country, at least in theory, the cost of labor is a fundamental variable that must be compatible with maximizing production capacity. Nearshoring experts may argue that, when relocating a factory, companies can lose the low labor cost due to the increase in transportation costs. However, in the case of Mexico, the labor cost is considerably lower than in China. In a study by Statista, the average labor cost in Mexico between 2016 and 2020 was at least $1 USD/hour lower than in China. By relocating factories to Mexico, North American companies previously established in China would not only increase their profits due to shorter transport times, but also due to lower labor costs.

Access to International Markets

The commercial relationship with Mexico offers a unique opportunity to access international markets without considering significant costs. Mexico is a member of the USMCA — previously known as NAFTA — which connects Mexico economically with the United States and Canada. In addition, Mexico has eleven other free trade agreements with nations around the world, such as Israel, Japan, Chile, Colombia, an agreement with the European Union, and is also a member of APEC.

Nearshoring: An Opportunity for the Mexican Economy

The growing Nearshoring trend for Mexico represents a series of notable benefits, with the capacity to transform the Mexican economy. Morgan Stanley, for example, states that exports could grow by more than $155 billion in 5 years — approximately a 10% increase in Mexico’s GDP.

KredFeed and nearshoring

If you’re a Mexican company taking advantage of Nearshoring, you’ll need liquidity and efficient cash flow management. This is due to supplier payment terms, which many of the corporations doing nearshoring in Mexico handle at 30, 60, or 90 days.

If you need to support those payment terms, learn about KredFeed’s invoice factoring options, which let companies turn their accounts receivable into immediate cash, without complicated paperwork and with a 100% online process. This way, you can cover operating expenses, invest in growth, and strengthen your position in the market.

Conclusion

Nearshoring in Mexico not only represents an opportunity for the country’s economic growth, but also for companies seeking efficiency and proximity to the U.S. market. If your company wants to take advantage of this trend, at KredFeed you’ll find a fast and effective solution to keep a positive and sustainable cash flow.

Create your account and learn more about our factoring requirements here.