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Nearshoring to Mexico: As Near—And As Good—As It Gets

agosto 18, 2022 | #EnVozDelExperto

By José Dabdoub, Industrial Specialist-Southern Arizona and Sonora, Mexico at Cushman & Wakefield – PICOR

 

One Billion Square Feet: that is the entire industrial market in Mexico. To put that in perspective, it is roughly equivalent to the entire industrial market in greater Chicago. And yet, this seemingly inconsequential market will grow as a major player as companies attempt to solve their manufacturing and supply chain constraints post-pandemic. According to a March 2020 survey by Thomas™, at least 54% of company executives interviewed across the manufacturing and industrial sectors said they were likely to bring manufacturing production and sourcing back to North America. Fast forward two years, and here we are, still wondering when supply chains will return to normal. Early indications suggest that 2022 will not be that year. It’s not surprising that the same Thomas™ poll conducted in March of last year, found that 83% are very likely, or extremely likely, to reshore, and as a result, North America, and more particularly Mexico, will see a rise in demand for manufacturing space. Whereas during the early stages of the pandemic we saw a sharp increase in demand in space for warehousing and distribution, as a result of the e-commerce explosion, this last year has been, at least in Mexico, mostly about manufacturing and how we bring production and supply chains closer to home.

 

Having said that, reshoring has challenges of its own. It’s not easy to reverse the 40-plus year trend of outsourcing and offshoring manufacturing to emerging markets around the globe. If we’ve learned anything from the pandemic, it’s that we’ve relied too heavily on a single country, which has left many exposed and vulnerable. Even today, there is likely no supply chain out there that is completely dissociated from China. But again, it’s the result of spending so many years manufacturing and sourcing abroad. Supply chains are bound to deteriorate here at home, and you inevitably lose talent, expertise and capital. From a labor perspective here in the US, it’s troubling to learn for example that the median age of manufacturing employees is 55; and even more concerning to know that younger generations don’t seem interested in entering the manufacturing job market.

 

And this is where Mexico brings a lot of value, in its ability to immediately provide solutions in those two areas: supply chain and manufacturing capacity, and an affordable and quality workforce. Labor costs in Mexico have remained relatively low and stable over the last few years; however, the availability of skilled labor and high-tech talent is better than ever. Not only that, but also unemployment rates are still relatively high, creating an employer’s market. Coupled with a fairly robust supply chain that encompasses not only North America, but also Central and South America, and the ease of transportation to and from the United States, it puts Mexico in a highly competitive position. Mexico has more than 14 Free Trade Agreements comprising more than 50 countries, which means that it has access to more than 60% of the world’s gross domestic product. However, it is the USMCA that is fundamental to the US and Mexico. This is where the concept of ally-shoring comes in. Ally-shoring is a strategic twist to the concept of near-shoring, whereby a country rethinks its manufacturing and supply chains strategy not only in terms of proximity, quality and reliability, but also in terms of how to source essential materials, goods, and services from trusted democratic partners. This means that US companies will become increasingly selective in choosing friends and trusted allies, like Mexico, to source and co produce with, as a matter of long-term stability and success. According to the most recent publication of Mexico Now, as of February 2022, Mexico is once again the United States’ lead trading partner, after being bumped out for almost three years. Exports totaled $32.5 billion in February, which represents a year-over-year increase of 18.6% compared to 2021.

 

Now, it’s important to remember the concept of nearshoring to Mexico is not new. The first time this came about was back in the 1960’s, when the Border Industrialization Program (BIP), commonly referred to as the maquiladora program in Mexico, was first implemented. During the war in 1942, the First International Migrant Labor Agreement, better known as the “Bracero Program” was enacted in the US to allow Mexican workers to work temporarily in the US, as a response to the high number of US individuals who were leaving the workforce to enlist in the armed services. However, when the Bracero Program was terminated after the war, there were high levels of unemployment in Mexico all along the border region. This gave way to the BIP, started in 1964, which not only solved the unemployment crisis for Mexico, but also provided the US with an alternative manufacturing partner closer to home.

 

So as the saying goes, history is bound to repeat itself, or as Mark Twain put it, “History doesn’t repeat itself, but it often rhymes.” I believe that the USMCA, signed just prior to the pandemic, came, serendipitously(?), at the best possible time for all three North American partners. Now, what we are seeing is an accelerated implementation of the agreement, and frankly, it’s exciting to see it working, and even more exciting to think this is only the beginning.

 

 

José Dabdoub brought 10+ years of experience working in the Arizona-Sonora region when he joined C&W | PICOR in 2019. As a bilingual and bicultural real estate professional, he has a deep understanding of the cultures, the people and the investment opportunities arising in such a rich and dynamic region of the world. His focus is in Industrial Sales and Leasing in Southern Arizona and Sonora, Mexico.

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