“Nearshoring” is a hot topic throughout Latin America and is receiving increasing attention in the United States. We offer this introduction to “Nearshoring” and the opportunities it presents for your reference.

“Nearshoring” has become increasingly relevant in the context of the globalized economy. This phenomenon describes relocating production and service operations to countries geographically close to consumer markets, instead of opting for more distant locations as in traditional “offshoring”, considering, as dominant criteria, production conditions and costs.

Mexico, for example, given its strategic geographic closeness to the United States and its highly skilled labor force, is an attractive location for companies in a wide range of industries which are considering relocation or construction of new facilities and seeking to optimize costs, maintain efficiency and mitigate supply chain risks.

WHAT IS “NEARSHORING”?

“Nearshoring,” or “proximity in outsourcing,” involves companies building new facilities or relocating existing facilities and operations in countries neighboring or close to consumer markets, rather than doing so from more distant locations. This has led to a significant change in the way companies evaluate their supply chains and operations.

Mexico is a particularly prime candidate for Nearshoring, given its proximity to one of the world’s largest consumer markets, the United States. Companies can benefit from a shorter supply chain, which reduces logistics costs and risks, as well as delivery times.

In addition, the United States-Mexico-Canada Agreement (“USMCA”, the successor agreement to NAFTA) favors the exchange of goods and services between the countries that make up this trade block (USA, Mexico & Canada). Consequently, USMCA provides additional incentives for “nearshoring.” Notably, through “nearshoring” products can be handled in Mexico in such a manner that the product qualifies for favorable treatment under USMCA that would not have been available had the product been produced exclusively elsewhere, for example, in China.

“NEARSHORING” AND THE CONSTRUCTION INDUSTRY

The relocation or construction of new manufacturing and service facilities in Mexico therefore provides many opportunities for construction industry professionals and companies. Natural candidates for involvement in new facilities being developed include design professionals, contractors, construction managers, specialty trades, manufacturers and suppliers – EPC and industrial leading the pack.

Expansion and development of the infrastructure to support these facilities is also required, including power, civil, commercial and residential design and construction. Opportunities exist in all phases of the project lifecycle, including planning, development, financing, design, construction, operation and maintenance.

INDUSTRIES ALREADY BENEFITTING FROM “NEARSHORING”

Examples of industries which have already shifted to and are benefitting from “Nearshoring” in Mexico are:

Automotive Industry:

Mexico has been a favored destination for automobile and auto-part manufacturers due to its proximity to its most important markets, the Americas, as well as its skilled labor force and competitive labor costs. Companies such as General Motors, Ford and Volkswagen have already invested heavily in manufacturing plants in Mexico in order to benefit from “Nearshoring.”

Information Technology (IT):

Another area of significant development in Mexico is in the IT industry. Major cities such as Guadalajara and Monterrey have become important technology hubs, attracting investment from global software and technology companies. Relocation and construction of research and development, as well as manufacturing and service facilities in Mexico offers these companies access to highly skilled talent at reduced labor and operation costs, in close proximity to major markets and distribution centers in the Americas.

Manufacturing and Logistics:

Mexico’s skilled workforce and competitive production costs are leading to an increase in “nearshoring” for manufacturing and logistics facilities, including production of home appliances, medical devices and electronics, as well as distribution center operations for companies supplying the North, Central and South American markets, which, in turn, provides significant opportunities for construction industry professionals and companies.

Contact Services and Call Centers:

Another sector that has experienced a boom in “nearshoring” is customer service and call centers. Financial services, technology and customer service companies have established operations in Mexico due to its favorable geographic location, bilingual workforce and customer service culture.

GOVERNMENT BENEFITS AND CHALLENGES

The Mexican government promotes the economic and social benefits of “Nearshoring” by, among other things, implementing policies which encourage foreign investment and improve infrastructure. However, security and political stability continue to be important challenges for companies considering “nearshoring”. Construction industry professionals and U.S. companies wishing to take advantage of “nearshoring” opportunities must be able to successfully perform and manage the risks and challenges associated with operating in a foreign jurisdiction, subject to different regulatory and legal systems, as well as foreign cultures and business practices.

THE PECKAR & ABRAMSON – COMAD ALLIANCE: SUPPORTING “NEARSHORING”

For almost 15 years, P&A and COMAD, two leading construction law firms in the Americas, have worked together on some of the most relevant construction projects in Latin America, Mexico in particular. Through this Alliance, we combine the needs of American and international companies with local expertise, providing solutions with a multicultural and holistic approach for the benefit of their clients.

The P&A/COMAD team is prepared to support the needs of construction industry professionals involved or interested in “nearshoring.”

For more information, please contact:

Jerry P. Brodsky
Peckar & Abramson, P.C.
Director – Latin American Practice
jbrodsky@pecklaw.com

Roberto Hernandez
COMAD, S.C. 
Managing Partner
rhernandez@comad.com.mx

To view this in Spanish, click HERE.