The meaning of the word nearshoring can be explained as, bringing the production closer to the territory of consumption. Some of the problems that supply chains face are long distances and time differences between continents. This is why Nearshoring is a practice that helps improve and optimize supply chains.
Nearshoring offers a solution to these problems since it consists of a strategy in which a company moves part of its production by subcontracting companies from foreign countries that are relatively close and with similar time zones. Since their purpose is to be closer to the consumers and reduce costs.
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Unlike Nearshoring, Offshoring consists of subcontracting certain services in other locations. Let’s take, for example, the outsourcing of customer service to a mobile phone teleoperator. In this case, customer service can be managed from multiple locations, where the service is cheaper.
In comparison, offshoring is cheaper than nearshoring, however it carries a risk of loss of control by the company, since the distance hinders communication and coordination of teams. In addition to the fact that sometimes, cultural and legal differences, language barriers, and geopolitical balance can make labor relations and productivity difficult.
In contrast to offshoring, nearshoring can be a little more expensive, however, it takes advantage of the cost reduction, and has more presence in the transfer of production which allows communication and collaboration to be easier.
Mexico has become an attractive country for the practice of Nearshoring because of its closeness to the United States.
Nowadays, tensions between China and the United States have arised, due to the geopolitical conflict over Taiwan and in the same manner, the geopolitical conflict that has created the war between Ukraine and Russia has caused several Western companies to begin the process of relocation, in case the situation worsens.
Mexico not only has benefits with the United States, but with many other countries. Nearshoring in Mexico attracts a lot of foreign direct investments because of its favorable characteristics such as its food integration into the world economic order such as the T-MEC, a good relationship with the OECD, is part of the G20 and the Pacific Alliance.
Mexico also enjoys a strategic geographical position and a wide variety of natural resources, as well as, the labor force that is young and numerous, it does not have a very high cost and is considered well qualified.
Consequently, Mexico has been placed as the best destination for Western companies to move their supply chains, better known as nearshoring.
This means for Mexico, the arrival of capital and strong foreing investments, as well as, the growth of export that goes into the United States. Mexico could displace China in the manufacturing area, there would be an increase in employment, a growth of the Gross Domestic Product (GDP) equivalent of 1.77%, and the appreciation of the Mexican peso.
Various plant expansions are currently on the doorstep in Mexico, and new capitals, especially asian ones, are expected to arrive. The industries that have presented the greatest qualities thanks to the Nearshoring are the automotive industry, followed by the metalworking, electronic commerce, construction and the textile industry.
The United States, Canada, Spain, China and Germany are the main countries that do Nearshoring in Mexico, in the areas of manufacturing, financial and insurance services, retail and wholesales trade, and communication.
Mexico’s future is promising and involves a vision of exponential growth, but this can only be achieved if the infrastructure in Mexico improves. Since the goal is to make the relocation easier causing more companies to come to Mexico.
Thanks to Nearshoring, Mexico could become a world power.