The Nearshoring Boom in Mexico: An Opportunity for U.S. Service Providers

The Nearshoring Boom in Mexico: An Opportunity for U.S. Service Providers

The nearshoring boom is a major opportunity for service providers. As more and more companies look to manufacture in Mexico due to nearshore advantages, U.S. service providers have a chance to expand their reach and grow their business.

Nearshoring in Mexico

Mexico is a major exporter of manufactured goods, with exports of these goods accounting for about 80% of total exports (2023). The United States is the largest export market for Mexico, followed by Canada and China. Mexican exports to the United States was US$386.09 Billion during 2021, according to the United Nations COMTRADE database on international trade.

Mexican Exports to the United States, in billions of dollars.

In 2022, Foreign Director Investment into Mexico surpassed $35 billion dollars, with 36% of the investment focused in Manufacturing. The United States and Canada were the top two investing countries in 2022, and since 1999 have been in the top 3 investment origins of FDI in Mexico (economia.gob.mx/datamexico).

Truly, the three countries act as a region under the USMCA framework. The countries’ interwoven supply chains have been developed and optimized by combining the abundance of Mexican labor with northern technology. The availability of cost-effective input allows U.S. and Canadian companies to stay competitive in the global market. Productivity improvements have been driven by advanced technology in manufacturing, parallel to a structural shift toward higher-skilled services jobs in the U.S. In fact, half of the trade within North America occurs in “intermediate goods” – materials or components destined for finished product. The three countries literally build things together.

Read more about North American collaboration from the nearshoring boom here.

The Opportunity for Services

The nearshoring boom in Mexico presents a major opportunity for U.S. service providers, particularly those looking to increase their ability to market and promote their services close to home. Companies can take advantage of the proximity of the two countries by providing services like logistics, maintenance/repair, testing, inspections, research, automation, engineering, training, coatings application, software, installation, etc.

In addition to the nearshoring opportunities, there are many reasons why the the services sector is poised for growth.

1. The close proximity decreases asset transportation costs, travel time, time zone parity and ultimately reduces business disruption for companies with cross-border operations. This allows for closer oversight to facilitate knowledge transfer, and integration into teams focused on agile operations.
2. Mexico's economy is diversified, with strengths in consumer business, retail, manufacturing, technology, and finance. It has been shaped from years of foreign direct investment from the United States and Canada, as well as other high-performing economies.
3. Mexico’s workforce is another competitive advantage. Mexico has an educated workforce, with high secondary and graduate education levels, particularly in technical fields. Many professionals are previously trained in international systems and software. The Mexican labor pool has descent English skills, particularly in the northern bordering states, yet commands lower wages than other Latin American markets with similar talent profiles.
4. There is a fairly high level of English skills among professional workforce in the large mutli-national sector. Additionally, the second most popular spoken language in the U.S. is Spanish. This creates a value-add for service companies that serve Hispanic markets in the region as well as the Americas.

As nearshored operations continue to come on line in Mexico, there will be an increased need in industrial services and value-add as supply chains continue to regionalize. Additionally, there are great benefits in services for a U.S. domestic market, delivered from Mexico. Jobs that stay in the North America benefit the region. In fact, 40 cents of every dollar of Mexican export into the United States, whether goods or services, benefits the United States. Mexican jobs directly create U.S. jobs, through upstream or downstream supply chains, software and technology, financial services, web services, etc.

The USMCA agreement includes a first-of-its-kind chapter on digital trade that contains the strongest commitment of any international agreement to date. This chapter protects international data transfers, prohibits customs duties on electronic products, prescribes the use of electronic authentication, addresses cybersecurity challenges, and enhances customer protections, among others. Mexico undertook significant legislative reforms to implement its intellectual property commitments for compliance under the USMCA. As with many new initiatives, it is not free from challenges, including enforcement, implementation, and national regulations. This revolutionary chapter will continue to play out in the coming years and with the increased technology transfer in the region.

Read more about the 21st Century Customs Framework here.

Talent in Mexico

Due to years of foreign direct investment inflows into Mexico as well as the increased collaboration between Canada, the United States and Mexico, the manufacturing skills level in Mexico is world class. Increased foreign investment has spurred knowledge transfer, and the Mexican talent market is shaping up to take on their role in the region. Many Mexican professionals play vital roles in the international organizations that they serve today, and are supportive of building a better tomorrow.

Mexico boasts a young population with about 2 million young people entering the workforce annually over the next five years (Secretariat of Economy, 2023). Many of these young people are trained in areas of future growth. In fact, in the 2021-2022 scholastic year, more than 169,000 students graduated from Science, Technology, Engineering, Math (STEM) fields. In 2021, more than 83,000 engineers graduated with a focus on electronics, industrial, mechanical, construction and chemical processes.

Collaboration between the North American manufacturing workforce goes beyond physical production. Engineers, designers, and technical experts from the three countries often collaborate on product development, innovation, and process improvement. This collaboration allows companies to tap into the strengths of each workforce, combining expertise and knowledge to drive efficiency and competitiveness. The USMCA supports this regional system of manufacturing production, leveraging the three countries' individual comparative advantages to compete as a region on a global stage.

According to a recent Brookings Institute report utilizing data from OECD, over 700,000 students graduated from STEM careers throughout Canada, United States and Mexico in 2019 alone. This talent pipeline serves manufacturers looking to fill technical and engineering roles throughout the region. As a result, North America is well positioned to become an even more attractive destination for investment and nearshoring in advanced manufacturing.

Capitalizing Nearshoring

The future of North America's service sector lies in the hands of regional collaboration. Canada, the United States, and Mexico are interdependent, each playing a crucial role in fortifying the region's domestic services. This symbiotic relationship has paved the way for the blooming of the manufacturing nearshoring boom in Mexico, offering immense opportunities for U.S service providers. Embracing this shift will not only strengthen their market position but also contribute to the regional economic growth, creating a win-win scenario for all. The time is ripe for U.S service providers to seize these opportunities and pioneer the new era of collaborative growth.

Due to client request, Prodensa created a solution for service providers to expand without exposure. Mindfacturing is an international Employer of Record service that enables U.S. corporations to hire Mexican professionals, domestically from the United States. It is focused on a professional and technical workforce that are hired on Prodens's Mexican payroll and work on corporate functions for our clients.

Whether you're looking to add a single expert who can enrich your team's skillset, or you're planning to assemble a team that can enhance your business operations, Mindfacturing is your ideal solution. It provides a seamless pathway to broaden your talent pipeline with a diverse workforce that offers cost-effective advantages.