In the drive to nearshore and establish a resilient supply chain, manufacturing in Mexico is the clear favorite. Mexico is now the USA’s largest source of imports – a result driven from both sides of the border. The Mexican government pushed policies to promote its export manufacturing industries. At the same time, the U.S. became the largest source of Foreign Direct Investment (FDI) in Mexico.
Key to this has been Mexico’s maquiladoras. These export focused factories attract Mexican government benefits via their IMMEX program which allows for duty-free imports of intermediary goods. There are currently over 3,000 maquiladoras operating in Mexico.
Elon Musk has chosen to invest $5 billion in his own maquiladora. The new Tesla Gigafactory will produce the next generation of Tesla models.
Tesla isn’t the only company with their own maquiladoras. They follow a long list of established manufacturers, some who’ve been in Mexico for decades:
They all benefit from a high-skilled, low-cost manufacturing workforce, close proximity to the US market, and Mexican government programs that make Mexico an attractive manufacturing base.
Several drivers put Mexico into the position of biggest source of US imports.
This has lifted exports to make up more than 40% of Mexico’s total, annual economic output. The key exports to the US include automotive goods, aerospace, medical devices, electronics, appliances and textiles.
Mexican maquiladoras are not the only thing that is close to the US. Intellectual Property (IP) protection laws are also close to those of the US and Canada’s. The two key factors are:
Mexico’s mature manufacturing industry follows the standard Quality Management Systems (QMS). These include ISO 9000, the auto-industry’s ITAF 16949, HACCP, TQM, lean manufacturing and six sigma.
As an importer, your output has greater consistency and reliability. The result is greater customer satisfaction and stronger brand reliability.
Road transport is the primary means for importing into the USA. More than 80% of cross-border freight in October 2024 is by trucks. In October 2024 there were 22,600 daily truck movements alone. It isn’t a simple process. The process can take three trucks and a cross-docking operation at the border.
The shorter lead time means an importer can carry less inventory and working capital. The shorter Mexican/US supply chain also increases flexibility. Reaction time to demand fluctuations or quality issues is faster.
Potential US tariffs. This becomes a costing exercise for your own business. When you source, land and carry inventory 15% cheaper than from China, then you are better off sourcing from Mexico. This is despite the proposed 25% tariff on US imports from Mexico and the additional 10% on US imports from China as of November 2024.
There is another relationship worth watching. Potential tariffs may be tempered by Elon Musk’s close relationship with the Trump Administration. The extent of tariffs, at least in the automotive space, may be tempered.
Recent Mexican tariffs. In late December 2024 the Mexican Government changed the IMMEX program. Tariffs of between 15% and 35% were set on certain textile and apparel imports under HTS Chapters 61, 62, and 63. The aim is to protect Mexico’s domestic industries by imposing extra costs on the importation of finished goods such as clothing, home textiles, and bedding materials. This removes their eligibility for duty-free temporary importation.
The IMMEX program was designed for intermediary goods — products imported for use in manufacturing a different finished good — that will be exported back out. The Mexican Government’s action increases the cost to companies claiming IMMEX status on their imports, and then selling directly within Mexico. While these adjustments support local manufacturers, they pose a serious challenge to e-commerce retailers and 3PL’s using IMMEX to import finished goods from a third country (e.g. China) to then export to the U.S.
Raw Material Supply. Longer supply chains incur greater costs for raw materials. If you’re planning to relocate the manufacturing to Mexico, you need to consider the origin of your materials. Can you source them within Mexico, or do you need to import those too?
Mexico cannot meet all your raw material needs all the time. If you must import raw materials and components, Mexico has twelve free trade agreements covering 45 other economies.
Infrastructure. Like other competing economies, the quality of Mexico’s infrastructure can vary across regions. Make sure your new manufacturer’s road, rail, energy, telecommunications and security infrastructure isn’t going to become a supply chain constraint in the future.
Building relationships in any business is key. Mexicans value personal relationships in forging a successful commercial relationship. Mexico’s proximity to the US helps the building of business relationships, especially owing to the Mexican’s preference to deal in person.
While US businesses have flatter business structures, Mexico has traditional hierarchical structures. You need to know when you are speaking with the decision makers and when your counterpart may need to consult others in the negotiation.
Mexico presents a real option for those seeking to build a resilient supply chain. Several key Mexican advantages offer the foundations of a successful manufacturing base. However, it’s crucial to conduct thorough due diligence, considering factors such as tariffs, material supply, infrastructure, and the evolving regulatory landscape. By evaluating these factors and building strong relationships with Mexican partners, there’s no reason why you can’t take advantage of the opportunities on offer in Mexico’s manufacturing sector.
Ready to explore manufacturing opportunities in Mexico? Let Sourcify guide you to the perfect partner. Contact us today to streamline your supply chain and take advantage of Mexico’s manufacturing benefits!