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5 CHALLENGES OF NEARSHORING TO MEXICO AND HOW TO OVERCOME THEM

Did you know many companies have been successful thanks to Nearshoring to Mexico their manufacturing operations?

Here’s the problem you face: your manufacturing and logistics costs are on the rise as well as the delivery times of your products to your final customers.

This means you’re losing competitiveness; your margins are shrinking and you’re being unable to keep up with your competitors.

Luckily for you, there’s a solution. We introduce you to the 5 Nearshoring to Mexico Challenges so you can overcome your cost concerns and focus your time and energy on growing your margins and market share.

  • Lower your costs with qualified labor in a country with a demographic bonus so you can be and remain competitive.
  • Expand operations to a country with thriving commercial treaties with the USA so you can take the advantages that come attached to these relationships which means more benefits for your company.
  • Select a strategic location that helps lower your logistic costs and times so your product can reach your customers faster which means more efficient fulfillment times.

For over 35 years, we’ve been assisting more than 700 foreign investors in the manufacturing industry taking the advantages of nearshoring their operations to Mexico.

 

Now, we introduce you 5 challenges of nearshoring to Mexico and how to overcome them:

Understanding Mexican Regulatory Compliance (Delivery in Administration)

Don’t Lose Sight of Compliance

“Ensure local compliance in your operations,” says Jorge Ortega,  Associate & Strategic Advisor of Prodensa Consulting Services. “No matter what country you operate, governments are also being squeezed, and their interest to attract investment usually translates to game changes as well. You can’t focus only on global macros and dismiss the changes to incentives and rules that could add up to even more headaches and costs. One can’t go without the other.”

Manufacturing Compliance Regulations in Mexico

  • Official Mexican Standards (NOMs)
  • Federal Labor Law (Secretary of Labor)
  • Social Security (IMSS)
  • Mexican Standards (NMXs)
  • IMMEX, (Maquiladora, Manufacturing and Export Services Industry)
  • USMCA (United States-Mexico-Canada Agreement)
  • Maquiladora VAT Certification
  • Rule of Origin (RoO)
  • International Organization for Standards (ISO)

 

Understanding the Ramp-Up Costs (Investment)

First, analyze how much it costs to open a new manufacturing facility. These are some costs we recommend being considered in the decision-making process.

Labor

The sum of all wages paid to employees, employee benefits (mandatory and market-driven), and payroll taxes paid by an employer.

Logistics

Supply chain, transportation, tariffs, import duties, and other associated costs.

Infrastructure

Land, building, and utilities (electricity, water, natural and industrial gas, fiber optics, and other).

Services

Fixed costs, variable costs, operating costs, maintenance.

Taxes

Taxes and fiscal obligations on federal, state, and local levels. How to adjust your Mexico tax strategy to your corporate vision.

Government Incentives

Governments can offer financial assistance to private businesses making investments using economic incentives. Incentives can include tax abatements, tax revenue sharing, grants, infrastructure assistance, no or low-interest financing, free land, tax credits, and other financial resources.

 

Understanding and Adapting Company Culture to Mexico

“Culture is the name for what people are interested in, their thoughts, their models, the books they read and the speeches they hear.”

– Walt Lippmann

PRODENSA Network

We have operations all over Mexico, so our team knows how every corner of the country walks and talks, what moves, and drives them. Mexico’s extensive territory is as diverse as it can get, which makes it especially important to understand each community in order to find the right match for your company’s culture.

Experience Understanding

We’ve been on the block for more than 35 years working with over six hundred clients from all kinds of industries from all over the world. Our success comes from having experience understanding each and one of our clients and being able to match them with the right workforce helping their company’s culture permeate them and making it their own.

Learn With Us

An important point of being part of our community is that we communicate, constantly, and always with relevant information that will help you stay on top of the different situations that may impact you and your operations.

Understanding Labor

Nearshoring to Mexico Labor

 

Understanding and Identifying the Supply Chain

Developing a business case and scenario-planning review for your operation as well as for your current and backup supplier network is imperative to any strategy execution. Applying a multi-factor assessment to analyze cost, volume, standardization, value risk, etc., to your supplier network will give the foundation for scenario-planning and network optimization that will increase competitiveness.

If you currently have a supply base in China, evaluate what options you may currently have for supply chain agility. Consider the necessity to bring suppliers to North America or develop local, existing supply bases in key-value chain areas.

“We have multiple clients pursuing options for flexible and secondary supply chains, investing in feasibility studies for multiple supply chain alternatives, to see what options they have. It’s not enough to evaluate current market situations like taxes and tariffs and try to adapt to current market situations. You must develop multiple scenarios because the global market is in constant and accelerated change,” mentions Jorge Ortega.

It’s extremely risky to rely on just one provider. “We have seen entire value chain shifts from the impacts of just one company’s decision to relocate. When a key provider must make tough decisions for survival, it’s definitely going to affect others. If you rely on a limited supply base, you put yourself at risk, even if you maintain great relationships. Identifying alternatives is the only way to be agile and proactive in today’s market, and that is translating to competitiveness among global companies.” – Carlos Alvarado, VP & Sr. Partner / Strategic Advisor of Prodensa Consulting Services.

 

ABOUT PRODENSA

With 35 years of experience, GRUPO PRODENSA has been involved in start up operations and shelter in Mexico. We have assisted over 600 projects from all kinds of industries.

If you are interested to know more about nearshoring to Mexico, contact us, we would love to assist you.

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