Bain & Co: Mexico Risks Missing Its Nearshoring Potential

"Mexico has become the greatest attraction in the world for investments,” said Mexican Secretary of Economy Raquel Buenrostro on March 19th 2024, during the 41st general assembly of Mexico’s Business Coordinating Council (CCE) on March 19.

The CCE is one of Mexico’s most influential business organisations, representing its private sector.

These words from Raquel undoubtedly ring true, when we look at the wave of recent offshore investment into the country. 

The majority of this investment, at 57% has originated from firms in the US according to the Mexican Ministry of Economy.

As of this year, more than half of these investments at 54% have been in Mexico’s manufacturing sector. 

For example, in March the Yokohama Tire Corp specifically announced plans to build a new consumer/ light truck tire plant at the Alianza Industrial Park in Saltillo, Coahuila, Mexico. 

The construction of the modern US$380m plant will begin in 2027, with a planned annual output of 5 million tyres. 

“This is a clear signal that Yokohama is committed to the North American market,” Jeff Barna, Yokohama Tire Corporation (YTC) president and CEO commented.

“The increased production capabilities will supplement existing global capacity for tyres destined for our region,”

Other companies making landmark investments in Mexico include DHL Supply Chain, Ternium, Maersk and Amazon.

While these investments could take a couple of years to come to fruition, their benefits will be well worth it.

According to Mexican authorities, they could generate over 39,100 new jobs by 2028. Through manufacturing nearshoring, Mexican exports could see increases in value of over US$500bn dollars by 2030.

Mexico appears poised to create new employment opportunities and drive economic growth by embracing nearshoring. 

So why are some, like leading enterprise consultancy Bain & Co. arguing the nation risks missing its chance? 

Mexico: nearshoring or not-sure-ing? 

In ‘Mexico At a Crossroads: Is It Missing Out On Its Opportunity For Nearshoring?’ Jordi Ciuró, Partner, Mexico City and Armando Flores, Senior Manager, Mexico City at Bain & Company argue that Mexico will need to overcome a series of challenges to successfully embrace manufacturing nearshoring. 

On the surface, the situation appears nothing but promising. 

Manufacturing investment in Mexico is at an all-time high. 

Mexico’s exports have increased by US$130bn since 2019, reaching US$593bn in 2023. Mexico is the US’s largest trading partner, with over 15% of US imports.

But beneath these positive import numbers, real growth in exports has slowed by 17% since 2015-2019.

The nation is being outpaced by Asian countries like India, Thailand and Vietnam, who have seen faster export growth to the US compared to Mexico. 

Why is this happening? Jordi and Armando say it's because Mexico’s nearshoring potential has been impacted by six key factors. 

The path ahead

There’s a reason we here at Manufacturing Digital call manufacturing the ‘backbone’ of modern society. 

It’s not just because it provides the infrastructure, transportation and products integral to our day-to-day lives, but also because it both shapes and is shaped by geopolitical realities. 

Manufacturing can be a catalyst for profound national growth and change, but it can also reinforce and expose systems of deprivation and inequality. 

For Mexico to fully embrace manufacturing investment on an equal, empowered level, governmental effort to address the nation’s challenges with infrastructure, sector ecosystems, talent, security and power and water supply will be critical. 

Industries like electric equipment, machinery and metals could prove transformative for Mexico, which benefit from reduced competition from Chinese Exports to the US. 

If Mexico addresses these challenges, the nation could nearly double its export value to US$1.1tr by 2030. 

As manufacturing investment in the country continues to grow, the trajectory of Mexico’s nearshoring future remains a potent question. 

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