Addressing the Challenge of Nearshoring and International Freight: Diversification Strategies for a Comprehensive Solution

Mexico emerges as an attractive alternative in this scenario of change. Its rise as the leading supplier of imported goods to the United States underscores its ability to compete and scale in the global logistics chain. Executives highlight the importance of geographic diversification and how Mexico, with its developing infrastructure and proximity to key markets, offers an attractive option for companies seeking to mitigate risks and maintain an agile and resilient supply chain.

The survey also reveals expansion plans to other destinations, such as Vietnam, India and Thailand. This drive toward diversification reflects a growing understanding of the risks associated with over-reliance on any individual country in the global supply chain.

Why has Mexico become the preferred nearshoring destination?

In simple terms, Mexico's constant investment in its manufacturing industry makes it a smart nearshoring option for foreign investors.

Over the years, international treaties, educational initiatives, highly skilled labor, and strong local business support have collectively shaped the manufacturing industry in Mexico. As a result, this effort can be seen reflected in Mexico's participation in global affairs. The country plays a significant role in the global medical, automotive and consumer goods sectors for international freight. To illustrate, let's consider the following statistics:

• Mexico is the third largest food processor in America.
• Mexico ranks seventh as a vehicle manufacturer worldwide.
• Mexico is the second largest medical device market in Latin America.
• The country's strong presence in these vital sectors means ample opportunities for companies looking to invest and collaborate.

FDI IN MEXICO FROM 2006 TO 2024

International investors are naturally attracted to places with proven success, and Mexico fits that profile perfectly thanks to its competitiveness in the international freight space. The sustained commitment to development has resulted in constant growth in Foreign Direct Investment (FDI). Let's take a look at the following table with data from the Mexican Ministry of Economy.

Here are some insights we can draw from this FDI trend:

• Last year, Mexico received a record 36,215.37 million Mexican pesos in Foreign Investment, the highest since 2013, with 48% of new investments.
• In 2022, the growth rate was 5.2% annually, exceeding the average growth of 2% of the previous decade.
• The forecast for 2023 appears optimistic, with a consensus forecast for GDP growth rising to 1.1 percent in May, according to the Bank of Mexico.
• Approximately 47% of total FDI has come from the United States.

5 ADVANTAGES OF NEARSHORING IN MEXICO

The following advantages show the benefits of nearshoring in Mexico and its potential as a strategic, financially viable and globally competitive option.

• Location: Probably the one you've heard the most, but it's true. The location of Mexico is unmatched. Its strategic proximity to the United States and efficient transportation options offer a significant benefit due to proximity.
• Clusters: Mexico is home to multiple specialized industrial clusters. They facilitate the integration of new companies by providing qualified workers, suppliers and strategic allies in one place. For example, the medical cluster in Baja exemplifies the exponential growth that can be achieved in an established cluster.
• Workforce: Mexico is known for cultivating high-quality professionals committed to excellence. Some studies even show that Mexico is moving towards a knowledge-based economy, encouraging the development of highly specialized individuals. Clusters are also a decisive factor for the development of workers with specific experience in the industry.
• International Treaties: Trade agreements such as the USMCA and Mexican regulations facilitate nearshoring operations by reducing tariffs and strengthening protections for investors. These agreements create a favorable network for sustained growth and collaboration.
• Quality Buildings and Infrastructure: World-class buildings, efficient infrastructure and connectivity make Mexico an excellent place to install production facilities.

However, not everything is rosy. Challenges remain, from a lack of adequate infrastructure to the need to qualify multiple sources of supply. Reorganizing global supply chains is a complex process that requires careful planning and significant resources.

Ultimately, is reducing dependence on China in the global supply chain a good idea? The pros are obvious: greater flexibility, reduced risk, and a more resilient supply chain. However, cons are also important, including the need to overcome logistical challenges and find new reliable sources of supply.

The conclusion is clear: supply chain diversification is essential for long-term success in an increasingly interconnected and volatile world. China will continue to play an important role, but the key is to balance its influence with a smart and proactive diversification strategy. Ultimately, adaptability and responsiveness to market changes will be the cornerstone of competitiveness in the 21st century global supply chain.