Capitalizing on Mexico’s Economic Growth
Continuing economic development across Mexico is opening the doors to exciting growth opportunities for U.S. businesses. Mexico is already the United States' third-largest trading partner, while the United States ranks first among Mexico's trading partners.
Mexico's established manufacturing base has created many jobs and an increasingly prosperous working class. As a result, Mexico is attracting attention as a growing consumer market.
The opening of 275 Walmart stores throughout Mexico last year—despite the impact of the global economic contraction—provides strong evidence that major global corporations see a bright future for the region. Last year, retail sales increased 7.4 percent as more than 2,000 new stores opened, according to Mexico's retailer association ANTAD.
In addition, Mexico's future as a manufacturing base shines brighter than ever. Today, 80 percent of Mexico's exports move to the United States. Mexico also has free trade agreements involving 41 countries, and is negotiating agreements with Japan and Brazil. This diverse array of trading partners should support ongoing growth, job creation, and economic development.
Further supporting job growth, more global companies are considering "right-shoring" strategies. Manufacturers are re-evaluating the costs and business risks of locating operations in distant Asian markets. Instead, they are establishing manufacturing sites closer to their critical markets in North America. With its quality, low-cost labor force, Mexico is becoming a destination of choice for these companies.
Know the Pain Points
All these developments point to growth and opportunity for companies doing business in Mexico. Yet working across borders is always a challenge, and crossing the U.S.-Mexico boundary is no exception. While companies have managed maquiladora border-state crossings since NAFTA was implemented in 1994, exports from non-border areas have increased rapidly in recent years.
Whether companies have been crossing borders for years or are tackling the challenge of longer supply chains, cross-border strategies can help address key pain points, such as:
- Congestion. Investments in infrastructure continue to address current capacity issues on both sides of the border. Applying logistics expertise and leveraging high-volume materials flow can help companies bypass congestion and expedite shipments.
- Regulatory requirements. End-to-end visibility is becoming increasingly important to ensure compliance with new regulations. A more integrated supply chain, supported by technology, helps manage requirements while reducing administrative costs and delays.
- Extended supply chain costs. Manufacturers focused on material and labor costs when choosing the right plant location should also consider total landed costs. An estimated four to six percent of total trade dollars are spent on logistics, with little visibility into the potential efficiencies and improvement opportunities.
- Transportation needs. Companies must ensure access to the right mix of transportation resources—ground, air, and sea—and inventory management systems to meet their specific opportunities and market demands. Overall, infrastructure is improving in Mexico. But while urban areas offer excellent multi-modal transportation, access to outlying areas, where more manufacturing is being established, is less developed.
an end-to-end approach
Traditional service-based outsourcing models may not offer the visibility and continuous improvement capabilities companies need to turn cross-border trade into higher profitability.
Shippers in Latin America historically have engaged logistics services providers for specific areas of the supply chain, leveraging targeted expertise. This practice required shippers to develop and manage an often-complex network of carriers and providers.
Taking an end-to-end supply chain management approach, supported by a common platform, can improve inventory and capacity management and better leverage volume synergies. An integrated supply chain also provides the flexibility to adapt to unpredictable consumer demand.
Key elements of an integrated cross-border strategy include:
- Transportation from a U.S. port or point of supply to cross-border facilities.
- Ready access to cross-docking and warehousing near the border.
- Southbound transportation from cross-border facilities to vendor-managed inventory hubs or manufacturing facilities in Mexico.
- Northbound transportation from manufacturing or finished goods facilities in Mexico to cross-border facilities in the United States.
- Customs clearance and drayage for import and export shipments.
- A common technology platform for visibility and process management.
ready to grow
Growth opportunities abound for companies seeking to serve an increasingly prosperous consumer base across Mexico and Latin America. More companies are looking to 3PLs that can provide bundled services with scale and flexibility across Mexico and into other emerging markets in Latin America.
The right partner will have the warehousing, IT systems, and transportation infrastructure in place to control upfront costs and ensure visibility into the supply chain.