Why More Manufacturing Industries Are Nearshoring to Mexico
Many U.S. manufacturers with highly intensive processes are feeling a cost crunch, and Mexico could be the solution they’re looking for. Manufacturing industries of all kinds are moving part of their operations south of the border in order to reduce costs, receive more convenient shipping, and make travel to and from their facilities much easier than manufacturing in China.
Many companies are likely to benefit from this nearshoring opportunity, but there are a few industries that have seen recent surges, in addition to the top mainstays that rely heavily on nearshoring to Mexico as part of their business operations.
For decades, powerhouse industries including automotive, aerospace, information technology, medical device manufacturing, and electronics have maintained good trade relationships with Mexico as part of a cost-effective supply chain solution. Among these companies are global brands including Ford Motor Co., Honeywell, Toyota and Samsung to name a few. These industries are able to stay competitive by taking advantage of the convenient logistics, highly-skilled workforce, and more cost-friendly operations and labor Mexico has over China. In more recent years, other industries have seen the advantages of nearshoring to Mexico as well. These include (but aren’t limited to):
Stamping and metal mechanics
Plastics (to some extent)
Textiles (automotive and industrial applications)
Additionally, according to Inbound Logistics, one in every six U.S. jobs is now tied to manufacturing, thanks to the digital age of 3D printing, big data, and robotics. To meet growing consumer needs and sustain business operations, Mexico is becoming an increasingly popular option for any and all manufacturing industries that want to mitigate costs without compromising quality.
Despite the growing interest in trade-related positions in the U.S., nearshoring to Mexico means access to a skilled, experienced workforce at a lower labor rate. Research continues to show one of the greatest challenges for U.S. manufacturers is attracting skilled labor even as trade and technical school enrollment slowly sees a resurgence. HVAC degrees make up almost half of the enrollment for post-secondary education in these intense, labor-focused fields with electrical, welding, and auto body collision repair following. Many Mexico vocational schools are set up in conjunction with companies and the government to train in these industries. The result is a strategic operational solution that allows foreign companies a competitive edge at a more economical rate.
Nearshoring to Mexico in Today’s World
In today’s world, trade disputes continue between the U.S. and China, which is causing more manufacturers to consider building new factories and moving operations to Mexico. NAFTA has grown and flourished over the years to help the U.S., Mexico, and Canada thrive. Companies in the 1990s and ‘00s originally looked to China as a cheap labor force but faced intellectual theft, among other challenges, which led people to turn to Mexico and other countries for its supply chain needs. Mexico follows similar IP laws as the U.S. and Canada to protect against fraud and theft. Proximity-wise Mexico also makes more logistical sense than China due to more compatible time zones, lower travel costs, and how quickly products are shipped and received.
When considering nearshoring to Mexico, manufacturing industries should look at the country as a whole. For example, Northern Mexico is popular due to its familiarity and proximity to the border, but there are areas farther out that are not as competitive nor as expensive. Additionally, foreign companies benefit from the high level of sophistication involved when using Mexico’s nearshore services. Mexican facilities maintain certifications, including ISO, as well as a highly-skilled workforce, which makes recruiting competitive. There has been a growing number of engineering and manufacturing graduates in Mexico, which means U.S. industries must be ready to provide ongoing training and invest in the people for long-term retention and production control.
Generally speaking, nearshoring is a regular practice among a growing number of manufacturing industries. It’s not only the mainstays of the global automotive companies or aerospace firms that are nearshoring to Mexico anymore. Industries like metal mechanics and woodworking are experiencing a labor crunch in the U.S. due to employees retiring from these industries and a new wave of employees not interested in factory work. As a result, they are turning their attention south of the border to meet operational needs.
Companies that choose to work with an experienced shelter provider in Mexico benefit in many ways from setting up operations, including minimized risk and a more cost-effective solution. In short, manufacturers want a low-cost solution that’s nearby, which has led to a surge of North American companies to consider Mexico as a viable solution.
Sergio Tagliapietra is currently President and CEO of IVEMSA. He has spent the last 30 years pioneering administrative service solutions in Mexico as the head and founder of IVEMSA. Today, working with governments in all parts of the continent, he is one of the country’s most respected business leaders in the field.
Gartner: Leaders Lack Skilled Smart Manufacturing Workers
With organisations rapidly adopting industry 4.0 capabilities to increase productivity, efficiency, transparency, and quality as well as reduce cost, manufacturers “are under pressure to bring their workforce into the 21st century,” says Gartner.
While more connected factory workers are leveraging digital tools and data management techniques to improve decision accuracy, increase knowledge and lessen variability, 57% of manufacturing leaders feel that their organisations lack the skilled workers needed to support their smart manufacturing digitalisation plans.
“Our survey revealed that manufacturers are currently going through a difficult phase in their digitisation journey toward smart manufacturing,” said Simon Jacobson, Vice President analyst, Gartner Supply Chain practice.
“They accept that changing from a break-fix mentality and culture to a data-driven workforce is a must. However, intuition, efficiency and engagement cannot be sacrificed. New workers might be tech-savvy but lack access to best practices and know-how — and tenured workers might have the knowledge, but not the digital skills. A truly connected factory worker in a smart manufacturing environment needs both.”
Surveying 439 respondents from North America, Western Europe and APAC, Gartner found that “organisational complexity, integration and process reengineering are the most prevalent challenges for executing smart manufacturing initiatives.” Combined they represent “the largest change management obstacle [for manufacturers],” adds Gartner.
“It’s interesting to see that leadership commitment is frequently cited as not being a challenge. Across all respondents, 83% agree that their leadership understands and accepts the need to invest in smart manufacturing. However, it does not reflect whether or not the majority of leaders understand the magnitude of change in front of them – regarding technology, as well as talent,” added Jacobson.
Technology and People
While the value and opportunities smart manufacturing can provide an organisation is being recognised, introducing technology alone isn’t enough. Gartner emphasises the importance of evolving factory workers alongside the technology, ensuring that they are on board in order for the change to be successful.
“The most immediate action is for organisations to realize that this is more than digitisation. It requires synchronising activities for capability building, capability enablement and empowering people. Taking a ‘how to improve a day in the life’ approach will increase engagement, continuous learning and ultimately foster a pull-based approach that will attract tenured workers. They are the best points of contact to identify the best starting points for automation and the required data and digital tools for better decision-making,” said Jacobson.
Long term, “it is important to establish a data-driven culture in manufacturing operations that is rooted in governance and training - without stifling employee creativity and ingenuity,” concluded Gartner.