Regionalization Relies on Relationships

May 28, 2024
By Sue Doerfler

To ensure supply availability, cut logistics costs and improve proximity to customers, more U.S. companies are looking to Mexico as an option. And those that already have operations there are expanding. Mexico is the No. 1 trading partner of the U.S., surpassing China in 2023.

“Last year, Mexico, depending on what report you read, received between (US)$38 billion to $44 billion worth of foreign direct investment,” said Alberto Villareal, managing director of Nepanoa, an advisory firm that works with companies expanding between the U.S. and Mexico. “Almost half of that comes from the United States.”

Foreign investment has grown exponentially since the start of the coronavirus pandemic, said Villareal, the moderator of “Regionalization: The Progress of U.S.-Mexico Collaboration,” a session during the Supply Chain USA 2024 conference last week in Atlanta presented by Reuters Events, part of London-based Reuters News & Media Ltd., also featured sessions on artificial intelligence and advanced technologies, logistics trends, supply chain complexity and more.

The keys to Mexico-U.S. trade nearshoring success are relationships and collaboration, panelists said.

A Nearshoring Supply Chain

Nearshoring isn’t an overnight process. It’s also a commitment. Companies expanding to Mexico go through a process in which they must “anticipate, architect and adapt,” said Patricio Castillo, head of nearshoring for BVVA Mexico, the largest Mexican financial institution. “You have to take each one of them into account.” Additionally, companies must factor into their move that nearshoring is a 20- to 30-year investment, he said.

Castillo’s team is working to build what he calls a “supply chain” for companies moving to Mexico. “We’re trying to promote a whole ecosystem” and the opportunities it can offer, he said, adding that banking institution has 1.5 million companies in its portfolio. “So, if you’re a (carmaker), you’ll be looking for glass, rubber, screws, metal, anything you aren’t making.” With its client base, the bank can encourage companies to use those businesses, thus enhancing the local economy, creating jobs as well as efficiencies for those nearshoring.

The bank also is working to help American companies in another way. All too often, organizations wait until after they’ve decided to expand to Mexico to learn about the market, the existing infrastructure and what the different Mexican states can offer, he said. Collaboration at the early stages also enables companies to set up financial necessities such as bank accounts and foreign exchange in a timely manner, Castillo said. “What my department is trying to do is push the momentum from us (getting involved) at the adoption stage to when the company needs more help” earlier in the process, he said. This also makes the process speedier and more efficient.

The role of the Mexican government is also collaborative, said Javier Diaz de León, Mexican consul general in Atlanta. “We serve as connectors; we are bridges,” he said. Companies often approach the consulate with questions about nearshoring opportunities, and his office helps them get in touch with the correct Mexican agencies at the federal and state levels.

“People need to have a greater understanding about the country, the differences in development, the differences in human and other resources … to give them the tools to make their decision,” he said. “We want to be a resource.”

Manufacturing Strength

Part of that understanding is realizing has Mexico has transformed into a strong manufacturing country. About 68 percent of all exports from Mexico come to the U.S. (84 percent of non-oil exports), Castillo said.

“Mexico has been transformed in past 30 years in terms of our manufacturing capability, but also in terms of our capability of building human resources, (especially those) necessary for that manufacturing capability,” Diaz de León said. “It’s a very different country than it was in the past.”

Over the past few years, Mexico has been working to create a strong economic ecosystem as well as the infrastructure needed to support growth in such areas as electric vehicles, car manufacturing and aerospace, he said.

Accessing an ecosystem of workers is what prompted Olin Corporation to expand its operations to Mexico. The plastics manufacturer started its nearshoring journey at the beginning of the pandemic, when it had a worker shortage, said the company’s president, Sam Rosen. “For us, this is a long-term strategy,” he said.

He continued: “U.S. manufacturing is not going away. It’s still strong and vibrant, and that’s going to continue. But from a growth rate, what we’re seeing and will continue to see in Mexico will be even more and the opportunity even bigger.”

The shift from Asia to nearshoring to Mexico will change supply chain challenges, but they will be overshadowed by such benefits as working in the same time zone, improving the ability to visit suppliers and increasing speed from the factory to warehouse. “All those pieces really make it really attractive.”

Fueling the Future

While the journey will encounter hiccups, like political changes, Diaz de León anticipates greater integration and realization “that we’re in this together and that we are complementary to each other in terms of economies,” he said. “As long as we keep doing this better, our companies, investors and consumers in North America will be the beneficiaries of what we have been building for the past three years,” since the inception of the U.S.-Mexico-Canada Agreement (USMCA). “By far, North America has become the most efficient manufacturing region in the world.”

Added Villareal, “We’re really building the future of North America, where the regionalization of supply chains and the collaboration between the three countries, Canada, United States and Mexico will continue to be enhanced.”

(Photo credit: Getty Images/Peeterv)

About the Author

Sue Doerfler

About the Author

As Senior Writer for Inside Supply Management® magazine, I cover topics, trends and issues relating to supply chain management.