Mexico´s Nearshoring Boom Attracts 7% share of New Investments

By Goodrich, Riquelme y Asociados

In the first half of 2023, Mexico made headlines with a 7% share of new investments, totaling $2.03 billion out of the $29.04 billion in Foreign Direct Investment (FDI). 

According to Bloomberg, this was marked by the relocation of manufacturing and business operations from countries like China to Mexico, driven by various factors such as increasing wages in China, the growing significance of the U.S. market, and the imperative to reduce supply chain disruptions.

Recent global events, such as the COVID-19 pandemic, have highlighted the vulnerability of international supply chains. Nearshoring, also known as the relocation of companies closer to end markets, has emerged as a strategic solution to reduce uncertainty and strengthen supply chain resilience. Mexico's participation in this shift positions it as a key player in the evolving global landscape, offering growth opportunities not only for large corporations but also for domestic small and midsize companies (SMEs).

Mexico has emerged as an attractive nearshoring destination because of three main reasons:

-It boasts a large and skilled labor force, making it an ideal choice for companies seeking talent for manufacturing and other industries.
-It offers a conducive business environment with a well-developed legal framework and ease of doing business, encouraging foreign investment.
-Its free trade agreement with the United States, known as the United States-Mexico-Canada Agreement (USMCA or T-MEC in Spanish), provides preferential access to one of the world's largest consumer market.
Although Mexico has made significant strides in attracting nearshoring investments, there are still more opportunities on its path to becoming a nearshoring powerhouse.

2022 preliminary data from an Inter-American Development Bank (IDB) study states that nearshoring could add $78 billion annually in additional exports from Latin America and the Caribbean in the near and medium term. Mexico could see the biggest gains, adding $35.3 billion annually in exports of goods alone. Until 2025, IDB can provide in the region an estimated $1.75 billion to $2.25 billion in short- and long-term financing and mobilized resources for new industrial parks, investment in anchor companies (including relocation expenses) and for developing innovative mechanisms to finance SMEs working in global supply chains.

According to the Secretary of Finance and Public Credit, Rogelio Ramírez de la O, Mexico is currently experiencing an opportunity that is “unlikely to be repeated” as nearshoring can boost exports, productive investment, job creation, and the improvement of living standards.

Amid the expanding of operations abroad, businesses must not overlook the importance of branding and intellectual property. Developing a robust IP strategy is crucial to safeguarding against risks such as counterfeiting and trademark infringements, ensuring long-term success in the global market.