Challenges and Opportunities in Nearshoring: Mexico 2030 Vision

Nearshoring represents a great opportunity for Mexico, but it also poses challenges that require long-term vision and political and business will.

Nearshoring, the practice of relocating production to nearby countries to reduce costs and delivery times, has generated a significant economic impact in Mexico. To date, nearshoring has resulted in investments of around 13 billion dollars in the country, coming from approximately 20 companies, the majority of which belong to the automotive and auto parts sector, including notable names like Tesla and BMW.

Despite the evident benefits, experts warn that Mexico needs to undertake key reforms to fully leverage the opportunities offered by nearshoring. The Organization for Economic Cooperation and Development (OECD) has identified three essential reforms: increasing investment in infrastructure and education, expanding tax bases, and improving the use of taxes such as property taxes (predial).

In addition, regulations for company creation should be streamlined, promoting formality and support for small and medium-sized enterprises (SMEs). Additionally, the OECD emphasizes the need to facilitate the integration of more women into the labor market.

In terms of benefits, nearshoring promises significant economic advancements for Mexico in the short, medium, and long term. According to the Council of Global Companies (CEG), nearshoring could generate between 2 to 4 million jobs by 2030 and attract annual investments of between 30 to 50 billion dollars. Additionally, nearshoring could increase Mexico’s GDP by 1.5% to 2.5% in the long term and enhance labor productivity by 15% to 30% by 2030.

The key areas to address the challenges and opportunities of nearshoring

To maximize the benefits of the international strategy, the CEG has identified seven key areas to strengthen this activity in the country, including the development of human capital, the implementation of a sustainable energy system, the improvement of critical infrastructure and connectivity, and the promotion of innovation and research.

Likewise, the development of suppliers and the linking of SMEs, as well as the simplification and harmonization of trade processes, are considered essential. Also among the most important is ensuring security, which means providing a rule of law that generates confidence for investors.

However, Mexico faces the risk of losing these opportunities if these challenges are not addressed in a timely and effective manner. According to the CEG, Mexico has a window of opportunity of no more than six years to attract these nearshoring investments. If timely action is not taken, the country could miss out on the opportunity to generate millions of jobs and experience significant economic growth in the coming years.

A safe bet in the short term would be to promote investment in infrastructure and education. The effects of these measures would be felt immediately, creating jobs and raising the quality of the workforce, while also laying the foundations for long-term development. Investment in education, in particular, could have a multiplier effect on economic development by preparing the new generations for the challenges and opportunities of the future.

What was once believed that the world would be globalized and that companies would be diversified across many regions no longer sounds like an attractive idea due to the risks it entails, including geopolitical uncertainties and even risks like the pandemic, which demonstrated how fragile supply chains can be disrupted. Mexico is at its prime to take advantage of the new vision of regionalization, and the northwest region could be one of the most benefited regions from nearshoring.

What do you think should be done to take advantage of this phenomenon?

_{Sources: El Heraldo de Juárez, El Financiero, Forbes, Milenio, El Economista.}