There are different processes by which companies operate:
Reshoring is the process by which companies bring the production and manufacturing of goods back to their original country.
Offshoring or relocation, the process of transferring the manufacture of goods abroad to try to reduce labor and manufacturing costs.
Nearshoring is a middle way, it does not return production to the country of origin, but instead moves it to geographically closer or more stable countries.
Why do some companies do offshoring?
- Costs: Companies seek a stable source of income and low-cost operations. However, due to economic fluctuations, some companies cannot maintain the cost of local activities and decide to do offshoring.
- Lack of Qualified Personnel: Some industries struggle to find qualified personnel in their local market. Through offshoring, they can find a highly-skilled team in low-cost countries and take on tasks that are attractive by local employees.
- Tax Regulations: The additional cost of keeping up with local laws and regulations.
- Competition: Global customers force us to be present wherever they are. With factories on different continents we more competitive in all regions.
Why do companies do reshoring or nearshoring?
- Instability: The geopolitical and pandemic situation has changed drastically in recent months, and in the last decade in general. War in Ukraine, Brexit, sanctions, COVID lockdowns. All of these factors drive companies to relocate their operations to or near home.
- Supply Chain: Nearshoring means that most of the supply links will be in the same time zone, which makes it easier to manage and creates more agile workflows.
- Regulations: Complying with material standards, quality control and the loss of intellectual rights abroad increases costs.
With all the already mentioned talking points, the trade tensions between the United States and China; as well as compliance with the T-MEC, have motivated 80% of US manufacturing companies in China to have relocation plan as part of their operations; and due to its geographical location, Mexico is one of the most attractive countries and has managed to achieve at least 80% of global nearshoring.
Since the Covid-19 pandemic and to date, China has implemented restrictive policies that have affected supply chains around the world, which has given a great boost to nearshoring since 2019, the commercialization of industrial space to companies with this type of investment has grown from 5% in 2019, to 13% of the total in 2021 and 25% during the first three quarters of 2022.
Although Mexico’s advantages for nearshoring are great due to the border it shares with the United States, it has a great disadvantage with China in technology, labour workforce and infrastructure. Therefore, industrial policy in Mexico will have to change to continue attracting nearshoring, starting with the main sectors that will benefit, such as the automotive industry, which had the highest absorption of industrial buildings in 2022, with almost 30% participation.
The challenge that Mexico has is the increase in investment for infrastructure, as well as looking for alternatives so the absorption is not exclusive to border markets, where the momentum of nearshoring can already be observed as there are no vacant spaces. An example of this are Monterrey, Saltillo and Tijuana, which concentrate 75% of the demand of foreign companies and it is estimated that at least 400 companies (AMPIP) are looking for a space in the northern zone of the country, which has forced developers such as Finsa, Prologis, Meor, Fibra Uno and Fibra Monterrey, to continue investing in generating new spaces to meet the demand for nearshoring.
During the first half of the year, the industrial sector in Mexico presented 97% occupancy, and according to AMPIP data, the opening of 25 industrial parks is expected in the next 12 months, 6 million m2, which represents an investment of 25 billion dollars.
The main markets in the country are experiencing takeovers of more than 18,000 square meters and vacancies of less than 1 percent, as a reflection of this wave of companies landing in Mexico due to relocation.
Due to all these investment announcements in recent months, which represent more than 10 billion dollars in Foreign Direct Investment (FDI) for our country, they will be reflected during the first half of 2023, which points to the next year will be a historical benchmark for FDI in Mexico.
