Bain & Co: Mexico must act to Fulfil Nearshoring Potential

In a bold statement underscoring Mexico's growing prominence in the context of global supply chains, Raquel Buenrostro, Mexican Secretary of Economy, declared back in March: "Mexico has become the greatest attraction in the world for investments."

This proclamation, made during the 41st general assembly of Mexico's influential Business Coordinating Council (CCE), reflected the surge of offshore investment in the country being seen in recent months. 

Recent data from the Mexican Ministry of Economy reveals that a significant 57% of this investment originates from US firms, with the manufacturing sector claiming the lion's share at 54%.

It's a trend exemplified by Yokohama Tire Corp's recent announcement that it would be constructing a state-of-the-art US$380m consumer and light truck tyre plant at the Alianza Industrial Park in Saltillo, Coahuila.

Jeff Barna, President and CEO at Yokohama Tire Corporation (YTC), emphasised the strategic importance of this move, stating: "This is a clear signal that Yokohama is committed to the North American market. The increased production capabilities will supplement existing global capacity for tyres destined for our region."

Mexico: A hub for investment

The influx of investment stretches beyond the automotive sector, with logistics giants DHL Supply Chain and Maersk, steel manufacturer Ternium and e-commerce behemoth Amazon all making significant commitments to the Mexican market.

These investments are projected to yield substantial economic benefits, with Mexican authorities forecasting the creation of almost 40,000 new jobs by 2028. Moreover, by embracing manufacturing nearshoring, Mexican exports could increase in value by more than US$500bn by 2030.

However, despite this apparent boom, some industry experts are sounding notes of caution.

In a report entitled 'Mexico At a Crossroads: Is It Missing Out On Its Opportunity For Nearshoring?,' Bain & Company Partner Jordi Ciuró and Senior Manager Armando Flores argue that Mexico faces significant hurdles in fully capitalising on its nearshoring potential.

Nearshoring aspirations in doubt

While manufacturing investment in Mexico has reached unprecedented levels, with exports climbing to US$593 billion in 2023, Bain & Co's report highlights a concerning trend: real growth in exports has decelerated by 17% since the 2015-2019 period.

Furthermore, Mexico is losing ground to Asian competitors such as India, Thailand and Vietnam in terms of export growth to the US.

The Bain & Company report identifies a number of factors impeding Mexico's nearshoring aspirations, including infrastructure deficiencies, talent shortages and security concerns.

The time is now

To fully harness the transformative potential of industries like electric equipment, machinery and metals – sectors that stand to benefit from reduced competition from Chinese exports to the US – Mexico's leaders must address the aforementioned challenges head-on. 

The stakes are high: successful resolution of these issues could see Mexico nearly double its export value to US$1.1tn by 2030.

As Mexico continues to attract substantial manufacturing investments, the ultimate success of its nearshoring strategy hangs in the balance, presenting both significant opportunities and formidable challenges for the nation's economic future.

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