Nearshoring has become a popular practice for companies that want to reduce costs while maintaining quality standards. Nearshoring refers to outsourcing business processes to a nearby country, usually in the same region, with the aim of taking advantage of the lower labor costs and other benefits that come with it.
Mexico has emerged as one of the top destinations for nearshoring due to its strategic location, a large pool of skilled labor, and a favorable business climate. In this article post, we will discuss why nearshoring in Mexico is more cost-effective than offshoring to countries like India or China.
One of the main advantages of near shoring to Mexico is the lower labor costs compared to offshoring to other countries. Mexico’s labor costs are relatively lower compared to those in the United States and other developed countries. According to a report by the Boston Consulting Group, the average manufacturing labor cost per hour in Mexico is around $6, while in China, it is around $4.50, and in India, it is around $2.50. However, when taking into account the additional costs of transportation, logistics, and other factors, the overall cost of manufacturing in Mexico is still lower than in China or India (Boston Consulting Group, 2014).
Another factor that contributes to the lower labor costs in Mexico is the availability of a large pool of skilled labor. Mexico has a young and growing population, with a median age of 28 years (World Bank, 2021). The country has a well-established education system that produces a large number of graduates in science, technology, engineering, and math (STEM) fields. According to the Mexican government, around 115,000 students graduate each year from STEM programs in the country (ProMexico, 2017). This provides companies with a steady supply of skilled workers who can perform complex tasks at a lower cost than in other countries.
A second advantage of near shoring to Mexico is the reduced transportation and shipping expenses compared to offshoring to countries like China or India. Mexico’s location makes it an ideal destination for companies that want to supply their products to the United States and Canada. The country is located close to major markets in North America, which reduces transportation and logistics costs. According to a report by Jones Lang LaSalle, Mexico is the only country in the Americas that can offer next-day delivery to major cities in the United States and Canada (Jones Lang LaSalle, 2016).
In addition, Mexico has a well-developed transportation infrastructure that includes modern highways, railways, and ports. The country has invested heavily in infrastructure in recent years, with the aim of improving connectivity and reducing logistics costs. According to the World Economic Forum, Mexico’s infrastructure ranks 56th globally, ahead of countries like India, China, and Brazil (World Economic Forum, 2019). This makes it easier and cheaper for companies to transport goods and raw materials to and from Mexico.
Mexico's trade with the United States has increased significantly over the years, with the total value of goods traded between the two countries reaching over $614 billion in 2019.
Another advantage of nearshoring to Mexico is the fewer cultural and language barriers compared to offshoring to other countries. Mexico shares a similar culture and language with the United States, which makes it easier for companies to communicate with their Mexican counterparts. Mexican workers are also familiar with American business practices and norms, which reduces the risk of misunderstandings or conflicts.
In addition, Mexico has a large population of bilingual workers who can speak both English and Spanish fluently. According to a report by the Mexican government, around 40% of the population speaks English to some degree, and around 5% are fully bilingual (ProMexico, 2017). This provides companies with a pool of workers who can communicate effectively with their American counterparts without the need for translators or other language barriers.
Several studies and reports support the cost-effectiveness of near shoring to Mexico. According to a study by the Reshoring Initiative, Mexico has become the top destination for companies that want to bring manufacturing jobs back to North America. The study found that between 2010 and 2018, over 170,000 jobs were reshored to Mexico, while only around 90,000 were offshored to other countries (Reshoring Initiative, 2019).
Another report by the Boston Consulting Group found that Mexico’s total manufacturing cost is around 5% lower than China’s when taking into account all factors, including labor costs, transportation, and logistics (Boston Consulting Group, 2014). The report also found that Mexico’s manufacturing cost is around 10% lower than India’s when factoring in all costs.
According to a report by Deloitte, Mexico is the third-largest trading partner of the United States, after Canada and China. The report found that Mexico’s trade with the United States has increased significantly over the years, with the total value of goods traded between the two countries reaching over $614 billion in 2019 (Deloitte, 2020).
In conclusion, near shoring to Mexico has become an attractive option for companies that want to reduce costs while maintaining quality standards. Mexico’s lower labor costs, reduced transportation and shipping expenses, and fewer cultural and language barriers make it a cost-effective destination for companies that want to outsource business processes. Moreover, data and statistics support the cost-effectiveness of near shoring to Mexico. With its strategic location, a large pool of skilled labor, and a favorable business climate, Mexico is likely to continue to attract more near shoring projects in the future!
Boston Consulting Group. (2014). Made in America, again: Why manufacturing will return to the U.S. Retrieved from https://www.bcg.com/en-us/publications/2014/globalization-made-in-america-again
Reshoring Initiative. (2019). 2018 Reshoring report: Reshoring and FDI surge, accelerating U.S. job growth. Retrieved from http://www.reshorenow.org/wp-content/uploads/2019/03/2018-Reshoring-Report.pdf
Deloitte. (2020). Mexico. Retrieved from https://www2.deloitte.com/global/en/pages/about-deloitte/articles/mexico.html
