In the first two installments of this series, we examined the benefits and risks of nearshoring to Mexico for US manufacturers, related to proximity, access, and costs. In this final installment, we review the benefits and considerations related to infrastructure, resources, and the business environment of Mexico. There are multiple factors for US companies to evaluate when considering Mexico in their supply chain.
Resources and infrastructure
In addition to significant investment and improvement in past decades, Mexico is heavily investing in its infrastructure – specifically in its ports, railways, and highways. This investment presents opportunities for streamlining shipments of goods to the US.
Paved roadway investments will ease linkages between towns, although security threats remain a concern. Mexico’s planned railway investment combined with the proposed merger between Kansas City Southern (KCS) and either Canadian Pacific (CP) or Canadian National (CN) could offer unprecedented exposure to Mexico’s industrial heartland. This would increase cost efficiency and to both US and Canadian markets.
Finally, Mexico has 16 maritime hubs offering access to the Atlantic and Pacific Oceans. 15 private investment port projects were planned for launch in 2020, and an additional 25 port projects are included in Mexico’s infrastructure development plan.
Business Environment
There is an increased focus on corporate responsibility and the environment. Mexico is enforcing environmentally friendly policies in the organized sector, and we see evidence of rising interest in corporate responsibility practices. Mexico’s private and public sector CSR programs have seen increased development over the past decade in attempts to match international standards such as the Organisation for Economic Co-operation and Development (OECD) Guidelines for Multinational Enterprises and the UN Global Compact. Responsible-business-conduct reporting has also made progress in past years with more companies developing CSR strategies.
Security and corruption in Mexico remain a concern. Security can cost as much as 5% of operating budgets according to the American Chamber of Commerce in Mexico, including extra precautions for executives and rising security costs for shipments.
Corruption still exists in Mexico, it fell six spots from 2019 to 2020 in the World Bank’s 2020 Doing Business rankings, to number 60 of 190 countries. However, US companies have not been targeted specifically by cartel violence, and the US Embassy is engaged in a broad-based effort with Mexican agencies to fight corruption and promote fair play.
Points to consider
As US manufacturers and distributors consider Mexico’s role in their supply chains, they should evaluate several factors in their decision. Supply chain characteristics related to resources, infrastructure, and the business environment that favor nearshoring to Mexico include:
- Lower dependency on world-class utility infrastructure such as water and electricity versus other global trade hubs
- Reliance on standard means of transportation that is congruent with the country’s developing transport infrastructure
- Robust compliance and security programs that help mitigate risks of corruption as well as localized security concerns
