November 2013 | Commentary | Viewpoint

Nearshoring in Mexico: The Benefits of Shared Borders

Tags: Latin America, Cross-border Trade, Mexico, Manufacturing

Robert Brenner is Senior Vice President of Warehousing and Distribution, Avnet Inc., 480-643-6400

Offshore manufacturing has been synonymous with the Pacific Rim for decades, and it's still often the best option for saving a line of business that might otherwise decline because of rising labor costs.

As the offshoring trend has progressed, however, the drawbacks of moving production far from demand have become more obvious. For example, the communication barriers of language, time zones, and infrequent face-to-face meetings make common design adjustments difficult and expensive for Asia-based production models. These variables can also impact delivery time.

Looking Closer to Home

While Asia is still a highly attractive offshoring destination, these dynamics have made nearshoring in the North American Free Trade Agreement (NAFTA) zone—especially in Mexico—a more desirable option.

Over the past decade, Mexico has made significant strides toward becoming a diversified economy with a deep skill base that offers more than just low-cost labor. Infrastructure costs—such as electricity, water and sewer, and transportation—are generally within 10 percent of U.S. costs. And the country has invested in its manufacturing infrastructure and labor pool to evolve into a more versatile producer of high-value goods, as well as commodity products.

Mexico's proximity also offers U.S. companies substantially more control over manufacturing quality, delivery schedules, and intellectual property management than they have with overseas manufacturing facilities. Beyond the transportation cost reductions of manufacturing closer to sales, additional cost savings can come from working with NAFTA countries thanks to tariff waivers specific to cross-border manufacturing.

Making Nearshoring Work

Some tried and tested tips for making the move to nearshoring include:

  • Communicate openly with your customers. Customers might be wary of Mexico's entire border region, because of how the American news media depicts troubles in a few communities. To dispel customer concerns, offer tours of your facilities, and show them that you have engaged and retained a skilled, stable, and trustworthy workforce.
  • Manage the production site staff. The employees working on your company's behalf should be engaged with your brand, and brought into your communications and training infrastructure.
  • Focus on security. Your company's management, business partners, and customers need to know you are closely monitoring inventory, and intellectual property on computers and servers is safe from theft. Retain two independent security firms to protect important physical and soft assets. Using two providers builds a self-auditing function into your security, and gives your customers an extra measure of confidence.
  • Recognize the value in written and verbal bilingual skills. Superior communication and responsiveness are two of nearshoring's main advantages over offshoring. Maximize the advantage by selecting bilingual employees for key customer-facing roles. They should be fluent in both spoken and written English.

Cost considerations commonly drive nearshoring production capacity decisions, but low costs alone won't make cross-border operations work. Your success depends on how well you manage nearshoring's potential supply chain risks and benefits.