Bain & Co: Nearshoring Potential Could be Missed in Mexico
"Mexico has become the greatest attraction in the world for investments,” declared Raquel Buenrostro, Mexico's Secretary of Economy, during the 41st general assembly of Mexico’s Business Coordinating Council (CCE) on 19 March 2024. The CCE, a prominent organisation representing Mexico's private sector, underscores the significance of this statement.
Buenrostro's assertion holds weight, considering the surge of offshore investment into Mexico.
According to the Mexican Ministry of Economy, 57% of this investment originates from US firms, with more than half—54%—directed towards Mexico’s manufacturing sector.
Major manufacturing investments in Mexico
Several significant manufacturing investments are making headlines.
For instance, in March 2024, Yokohama Tire Corp announced plans to build a US$380m consumer and light truck tire plant at the Alianza Industrial Park in Saltillo, Coahuila.
Set to begin construction in 2027, the facility will produce 5 million tyres annually.
Jeff Barna, Yokohama Tire Corporation's president and CEO, says: "This is a clear signal that Yokohama is committed to the North American market. The increased production capabilities will supplement existing global capacity for tyres destined for our region."
Other notable investments include:
- Walmart: US$2.1bn
- IKD, automotive parts supplier: US$178bn
- Minth Group: US$173m
- Carnot Laboratories: US$142m
These investments, along with contributions from companies like DHL Supply Chain, Ternium, Maersk and Amazon, could generate over 39,100 new jobs by 2028, according to Mexican authorities.
Furthermore, manufacturing nearshoring could increase the value of Mexican exports by over US$500bn by 2030.
Mexico seems poised for economic growth and job creation through nearshoring.
So why does leading consultancy Bain & Co. warn that the nation risks missing its chance?
Mexico: nearshoring or not-sure-ing?
In their report, Mexico at a Crossroads: Is It Missing Out on Its Opportunity for Nearshoring?, Bain & Co’s Jordi Ciuró and Armando Flores suggest that Mexico must overcome six key challenges to fully realise its nearshoring potential.
On the surface, the outlook seems promising: manufacturing investment in Mexico is at an all-time high and exports have risen by US$130bn since 2019, reaching US$593bn in 2023. Mexico is also the US's largest trading partner, accounting for over 15% of US imports.
However, beneath these impressive numbers, the real growth in exports has slowed by 17% since 2015-2019.
Mexico is being outpaced by Asian countries like India, Thailand and Vietnam, which have experienced faster export growth to the US.
Ciuró and Flores attribute this to six critical factors:
Sector-Wide Ecosystems: Mexico needs a stronger supplier ecosystem to support export growth, building vital sector clusters
Infrastructure and Logistics: Mexico’s logistics and transport infrastructure is lagging, particularly in intermodal connectivity. Customs processes have become less efficient
Power and Water Supply: Mexico struggles to provide reliable access to energy, like renewables and water, to drive industrial growth
Talent and Workforce: Mexico faces a shortage of skilled labour, critical to advanced manufacturing sectors like electronics and automotive
Competitiveness: Mexico’s manufacturing competitiveness could be reduced by labour reform and the strength of the peso
Security: High crime rates impact Mexico’s ability to retain talent and attract foreign investment
The path ahead
Manufacturing, often referred to as the ‘backbone’ of modern society, plays a crucial role in shaping and being shaped by geopolitical realities.
It can drive significant national growth and change, but it can also exacerbate existing inequalities and systemic issues.
For Mexico to fully capitalise on manufacturing investment, the government must address the challenges related to infrastructure, sector ecosystems, talent, security and power and water supply.
Industries like electric equipment, machinery and metals could be transformative for Mexico, especially as they benefit from reduced competition from Chinese exports to the US.
If Mexico tackles these obstacles, the nation could nearly double its export value to US$1.1tr by 2030.
As manufacturing investment in the country continues to grow, the future of Mexico’s nearshoring potential remains a critical question.
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