4 Benefits of Nearshoring in Mexico for Automotive Manufacturers
As global manufacturing dynamics evolve, automotive manufacturers are increasingly turning to Mexico as a strategic nearshoring destination. The shift began in 2019 when rising labor costs and the U.S.-China trade war started to erode China’s dominance as a manufacturing hub—a trend that was further accelerated by the COVID-19 pandemic.
Last year, Mexico surpassed China as the top exporter to the U.S., and according to Morgan Stanley, Mexico’s exports to the U.S. could continue to surge from approximately $455 billion to $609 billion, highlighting the country’s growing importance in global supply chains.
With favorable trade agreements, competitive labor costs and increasing industrial capacity, Mexico is becoming an attractive option for automotive manufacturers seeking to diversify and stabilize their production operations.
In this article, we’ll explore four key benefits that make Mexico an ideal choice for automotive manufacturers looking to optimize their operations through nearshoring.
Low-Cost Labor
While the U.S. and China are facing labor shortages, Mexico is able to invest in technical education and training producing over 110,000 engineer graduates annually, creating a skilled, available workforce. Additionally, Mexico’s consistent and lower wage rates—approximately $3.95 per hour as of 2019 compared to $4.50 in China—allow businesses to better plan and manage their production costs.
Shelter Model Compatibility
The Shelter Model is a proven process that allows foreign manufacturers to establish a maquiladora—a manufacturing facility—in Mexico without dealing with the complexities and red tape of starting a Mexican company. Particularly suited for low-volume, high-mix products like automobiles, the shelter model offers benefits such as favorable logistics, reduced labor and transportation costs and minimized risk. By taking care of all administrative tasks, including HR, accounting, trade operations and legal compliance, shelter services enable manufacturers to focus entirely on production while maintaining complete control.
USMCA & Trade Agreement Incentives
The USMCA works to create a strong North American trade bloc by mandating that at least 70% of a producer’s steel and aluminum must be sourced from a North American supplier. This requirement not only fosters regional supply chain integration but also positions Mexico as a key player in North American manufacturing.
Furthermore, Mexico’s extensive global integration, with 14 trade deals covering 50 countries, makes it an attractive hub for intermediary goods production, enhancing its appeal for manufacturers looking to optimize their supply chains.
China Plus One Strategy and Portfolio Diversity
The “China Plus One” strategy encourages companies to diversify their sourcing and manufacturing operations by reducing their reliance on China. By leveraging nearshoring in Mexico, manufacturers can establish parallel production lines in North America, thereby mitigating the risks associated with depending too heavily on a single country for critical components and production.
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Ensuring your production runs smoothly doesn’t just involve location and expanding your operation–it takes high-quality tools and equipment. Check out the latest solutions from our partner suppliers:
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