Can Mexico turbocharge pandemic nearshoring by US firms? | International Trade News

Mexico City, Mexico – The CEO of the United States Business Association of E-Commerce (USBAEC), Tayde Aburto, has a message for the Mexican government: Encourage more US firms to move businesses they have offshored to China and Southeast Asia closer to home.

“Some of our members have been successfully nearshoring to Mexico for several years,” Aburto told Al Jazeera. “About 5 percent of our members had taken up nearshoring prior to the pandemic.”

The entrepreneur and founder of the Hispanic Chamber of E-Commerce says Mexico said the supply-chain snarls and disruptions spawned by the COVID-19 pandemic have fuelled an uptick in nearshoring to Mexico, keeping USBAEC busy.

“When there is an opportunity, we connect companies with Mexican suppliers that we know have the quality and capacity to respond to the needs of American companies,” he said.

The US-based association also practises what it preaches, hiring tech professionals in the city of Morelia, in Michoacán state, to support its operations.

Some of our members have been successfully nearshoring to Mexico for several years.

by Tayde Aburto, CEO, USBAEC

The case for US companies to nearshore to Mexico has been building for years. The US-China trade war that grew under former US President Donald Trump raised the costs of a slew of China-based inputs for US business. Washington has also slapped restrictions on some goods from China over concerns that they contribute to human rights abuses. Rising costs for fuel and shipping stemming from the pandemic have also made Chinese goods less attractive to US companies.

And as China’s outsourced manufacturing star fades, Mexico’s shines brighter. The country is part of a free trade agreement with the US and Canada that allows for duty-free imports and easier transactions. It also has a cultural affinity with its northern neighbour, a strong manufacturing base and a growing talent pool of skilled tech workers.

“It is a country with plenty of resources that these companies are finally recognising,” said Aburto. “The federal government needs to be taking advantage of the opportunity to make Mexico’s strengths visible.”

The latest Deloitte Mexico Economic Outlook says that nearshoring currently offers Mexico a critical opportunity, “which, if grabbed in time, has the potential to help the country reverse years of slow growth in investment and in fact propel it to higher growth in the coming years”.

Deloitte cites jeans manufacturers who, following for example a 23.8 percent fall in shipments from Indonesia to the US in 2021, “are looking for suppliers that are close by in order to avoid bottlenecks in supply chains and higher transportation costs”.

Decoupling

A nearshoring boost would be welcome by Mexico. Its economy fell into recession at the conclusion of 2021, after contracting for two straight quarters. Unlike the US and other nations, the government of Mexican President Andres Manuel Lopez Obrador did not mount a major spending package to help prop up the economy during the pandemic. And it has even less wiggle room to throw money at the problem now. Annual inflation is running above 7 percent, due to shortages caused by supply chain issues.

Meanwhile, the United States-Mexico-Canada Agreement (USMCA) is cutting two ways for Mexico, said Ignacio Martínez Cortés of Mexico’s National Autonomous University.

It is a country with plenty of resources that these companies are finally recognising.

by Tayde Aburto, CEO of the United States Business Association of E-Commerce

While the USMCA pact eases trade between Mexico and the US, it also requires a larger number of automotive parts to be produced in the US as opposed to Mexico. But Cortés also points out that some of the fastest-growing industries on the Mexican border now include medical supplies, aerospace parts, and electronics, as US, Asian and European companies set up new operations.

Mexican officials are trying to highlight the case for nearshoring. Economy Minister Tatiana Clouthier has been promoting the country as a possible location for the manufacture of semiconductor chips – essential to automotive manufacture, and currently in short supply globally.

Mexican banker and adviser to the USBAEC Sergio C Muñoz told Al Jazeera that if the Mexican government wants to give nearshoring a serious boost, it needs to build more business-enabling infrastructure in cities beyond current hubs.

“If you’ve offshored to cities that are not CDMX [Mexico City], Guadalajara and Monterrey, for example, and you need your employee to have 5G internet to do the work, to transfer heavy files, and the government hasn’t invested in the infrastructure recently, why would you go through the expense of providing expensive equipment to somebody who won’t be able to use it?” he asked.

“The government must prioritise providing a suitable infrastructure for Mexican workers to be able to operate at the same level as they would be if they were in Palo Alto,” Munoz added.

Aburto said he only expects interest in nearshoring to Mexico to increase. Just recently, “we were contacted by a company that is moving their production from Korea”, he said.

“They have been sending their products from Korea to a port in Europe and then from Europe to South America and also the US,” he said, noting that now “they are moving that distribution centre from Europe to Mexico”.

For Muñoz, “With all the logistics, exploitation and environmental issues in Asia, [nearshoring] truly feels like a super opportunity for Mexico and educated Mexican youth to hop onto the economic growth ladder for the next ten years.”

“I beg the Mexican government to support the next generation with all the resources they need to succeed,” Muñoz said.