Nearshore Manufacturing is a cost effective way to manufacture in neighboring countries for closer product distribution, skilled labor, trade benefits, and financial stability. In recent years nearshoring has become a best practice for manufacturers and IT services, as a way to improve their supply chains and better service their customers in the region.
Unlike offshore manufacturing, where companies expand to countries outside neighboring regions for cost cutting purposes, nearshore manufacturing can provide more comprehensive savings not only in terms of labor costs, but also in logistics, travel costs, and creating an operating process that enables growth and transformation. For example, companies from U.S. and Canada that move to neighboring countries like Mexico, boost economic growth and open new markets in the industry. Mexico is known for its successful manufacturing industry, and hosts a number of advantages for those considering nearshore manufacturing. Some advantages include:
High skilled labor is an important asset to company growth while maintaining an advantage on industry demands. In 2015, about 8 million people were employed in manufacturing jobs in Mexico. Employees contribute to productivity, organizational progression and become part of the transformation process to benefit the globally connected nearshore company. According to ProMexico, in 2015, 115,695 students completed studies in manufacturing, engineering, and construction in Mexico. To put in perspective, according to UNESCO data, Mexico has 26% more graduates in manufacturing, engineering and construction per capita than in the United States.
The geographic proximity of nearshore manufacturing cuts transportation and travel time for more frequent site visits when products are being moved and assembled. The North American Corridors provide an efficient infrastructure with main international ports averaging more than 500,000 inbound trips a year. Increased activity from logistical benefits is aided by similar time zones for better control over the production line at the drop of a call. The convenient proximity of neighboring countries can also open new markets for small manufacturers that need to stay close to their clients and grow financially.
Growth and Transformation
The scales of production available in Mexican nearshore sites help benefit trade deals that lead to financial stability. Since the signing of NAFTA, North American countries have see a great deal of economic growth over the years. During 1994-2016, the U.S. averaged an annual 4.7% GDP growth, Canada’s annual average GDP was 2.58%, and Mexico grew an average 2.59%. Scale of production inherent in nearshore manufacturing moves beyond trade benefits and into financial stability as the regions cooperate to boost productivity. Many OEMs have grown their nearshore sites in Mexico to compete with industry trends and continue to strengthen their production process.
There are many modes of entry while beginning to think about nearshore operations in Mexico, including shelter operations, standalone entities, and contract manufacturing, to name a few. More specifically, shelter companies handle administrative, legal, and trade management duties while companies manufacture using their own equipment, process and materials. Shelter companies help optimize nearshoring by supporting company growth within the region.
Overall, establishing nearshore operations in Mexico can help cut costs and save time by promoting:
- Company diversification, growth, and operational transformation.
- Access to a skilled and productive workforce.
- Cooperation between neighboring countries that boost trade.
- A more efficient supply chain with access to North American and Latin American markets.