Things to Consider When Starting Nearshoring to Mexico
- Nearshoring to Mexico can be a cost-effective and efficient way for American companies to improve their supply chains.
- Finding reliable partners in Mexico, such as suppliers and logistics providers, is crucial for a successful nearshoring process.
- Choosing the right location is a key part of the Nearshoring process, as it can contribute to a great decrease in costs.
Nearshoring is becoming an increasingly popular option for American companies looking to reduce costs and improve efficiency in their supply chains. Mexico, in particular, has become a top destination for nearshoring due to its proximity to the United States, competitive labor costs, and favorable trade agreements.
To set the stage, let's define nearshoring and explore its key benefits. Nearshoring involves outsourcing business functions to a neighboring country to capitalize on proximity, and cost advantages, among others. Mexico has emerged as a prime nearshoring destination due to its skilled labor force, reduced transportation costs, shorter lead times, and cultural affinity with the United States. By nearshoring to Mexico, American companies can enhance their supply chain agility, reduce transportation expenses, and strengthen their market presence, among other benefits.
However, before American companies can successfully begin nearshoring to Mexico, there are different key factors they need to consider. In this blog post, we will discuss these factors and provide insights on how to achieve a successful nearshoring process in Mexico.
Understanding the Mexican Market
The first step in starting a nearshoring process in Mexico is to understand the Mexican market. This includes understanding the country's culture, business practices, and legal requirements.
Mexico has a unique business culture that is different from the United States. For example, relationships and personal connections are highly valued in Mexico. Therefore, it is important to build strong relationships with your Mexican partners and suppliers to ensure a smooth operation and beneficial ways of working.
Additionally, Mexican labor laws are different from those in the United States. For example, Mexican labor laws require employers to provide a certain number of vacation days and paid holidays to their employees. It is important to understand these laws and ensure that your company is in compliance with them.
Choosing the Right Location
Choosing the right location for your nearshoring operation in Mexico is crucial to its success. There are several factors to consider when selecting a location, including proximity to your customers, access to transportation infrastructure, and availability of skilled labor.
Northern Mexico, particularly the states of Chihuahua, Coahuila, Nuevo León, and Tamaulipas, are popular locations for nearshoring due to their proximity to the United States and access to major transportation routes. These states also have a well-educated and skilled workforce, making them ideal for manufacturing and other industries.
An example of the nearshoring trend is the announcement of the construction of Tesla's new plant in Nuevo León, which will contribute to the production of more vehicles, similar to what other big brands like BMW, General Motors, Volkswagen, etc. are doing. With the manufacturer's recent confirmation that it is building a $5 billion factory in the northern Mexican city of Monterrey, trade experts say Tesla is already influencing cross-border logistics and ground transportation, representing an increase of about $15 billion in export growth between Mexico and the U.S., which translates to 10% of automotive-related exports. Nearshoring is definitely the trend that has come on strongest this year, and one that we predict will continue to grow and bring countless opportunities to the sector for many years to come.
Another factor that comes into play when choosing the right location to install your plant is the access to crossings that are efficient for the freight volume and that reduces the amount of time wasted. A good option when choosing a suitable crossing may be the Laredo, TX crossing, due to multiple factors, such as proximity to other major cities in Mexico and the United States, great infrastructure, and connections to other major cities.
Finding the Right Partners
This is a critical step to the success of your nearshoring process. This includes finding suppliers, logistics providers, and other partners who can help you navigate the Mexican market and ensure your operations run smoothly. When considering nearshoring to Mexico, there are various types of suppliers that you need to consider. These suppliers can play a crucial role in your supply chain and contribute to the success of your nearshoring operations.
Here are some key types of suppliers to consider:
Manufacturing Suppliers: These suppliers are responsible for the actual production of your goods. They may include contract manufacturers, original equipment manufacturers (OEMs), or specialized manufacturing facilities. Assess their capabilities, production capacity, quality control processes, and adherence to international standards.
Logistics and Transportation Providers: They facilitate the movement of goods within Mexico and across borders. They can include freight forwarders, customs brokers, trucking companies, and third-party logistics (3PL) providers. Evaluate their expertise in cross-border logistics, their network coverage, track record, and ability to handle your specific cargo requirements.
Public Affairs Services: Consider suppliers of supportive services such as customs, legal and regulatory compliance, and financial services. These suppliers can assist you in navigating the Mexican business environment and ensure compliance with local regulations. Having these suppliers will help you to be compliant in all your shipments.
It is critical to thoroughly examine suppliers when nearshoring to Mexico in terms of their capabilities, dependability, track record, and alignment with your specific goals. Being clear about your objectives will ensure that the success of your nearshoring operation is reflected immediately. You can check our services and see how our solutions fit your operation.
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Managing Logistics and Customs
Managing logistics and customs is another key factor in the success of a nearshoring process to Mexico. The Mexican customs process can be complex and time-consuming, so it is important to choose the right logistics and customs provider who has experience navigating the process.
Depending on the size of your business and the number of imports you’re handling, you may need one customs broker that will handle your account or, if shipments are coming in from different lanes, you may need to hire a customs broker per lane to handle those shipments for you. This is relevant particularly when it comes to importing to Mexico. This will entail better communication, management, and making sure the workload is properly delegated to avoid mishaps in your day-to-day logistics. In other regions like the US, you may want one customs broker to make sure you are consistent with your filings.
Luckily, we offer Nuvo Customs. Centralizing freight and customs with a single provider like Nuvocargo can generate efficiencies in your supply chain, leading to an average of 33% faster crossings and additional cost savings.
Ensuring Quality Control
Maintaining quality standards is of utmost importance when partnering with Mexican companies, as American companies must ensure that the same level of quality is upheld as they would expect in the United States.
In today's interconnected global economy, businesses in the manufacturing industry often operate across multiple countries. Regardless of the location of their operations, these organizations must adhere to their clients' quality standards. Failing to meet these standards can lead to major consequences, including lost revenue, a damaged reputation, or potential legal repercussions. By prioritizing the satisfaction of quality standards, shippers can foster trust with their clients and establish a reputation for excellence throughout the nearshoring process.
There are numerous industries with stringent regulations and standards in place to ensure the safety and legality of their products or services. By integrating quality control measures into the nearshoring process, companies can ensure compliance with both U.S. and Mexican regulations, thereby minimizing legal and reputational risks.
Riding the Nearshoring Wave
The effects of the Nearshoring wave have been felt positively in Mexico and the United States, which brings huge growth opportunities for businesses in both countries.
Understanding the Mexican market, choosing the right location, finding the right partners, managing logistics and customs, and ensuring quality control are all critical to the success of a nearshoring process in Mexico; but the most important thing is to do it with the help of an expert logistics partner, like Nuvocargo, that can vertically integrate all the services you need to make your cross-border freight process run smoothly.
If this sparked your interest, feel free to contact our experts here.