- Reshaping Strategies: Bringing manufacturing back to North America for increased resilience and sustainability.
- Scale of Shift: 62% of manufacturers surveyed have started either near-shoring or reshoring their production capacities closer to the U.S.
- Driving Forces: COVID-19, automation, A.I., evolving demand, and more.
- Mexico’s Boom: How Mexico’s costs and proximity are driving growth in consumer products industries, fueled by a skilled workforce, favorable trade agreements, and IP protection.
- Nearshoring Benefits: Supply chain reliability, speed to market, lower shipping costs, and reduced carbon emissions.
- Future Outlook: Insights into trends, Mexico’s GDP growth and more.
- Strategic Partnerships: Importance of partnering with reliable and experienced contract manufacturers to reduce risks while taking advantage of nearshoring benefits.
In recent years, global manufacturing has been experiencing a seismic shift as companies increasingly embrace the strategies of re-shoring and near-shoring production back to North America. This movement aims to enhance the resilience, agility, and sustainability of domestic manufacturing in an evolving world economy.
Re-shoring involves bringing production back to the U.S. market, while near-shoring entails relocating manufacturing operations to countries in close proximity, such as Mexico. By positioning manufacturing closer to home, companies can achieve greater oversight and control of their supply chains. This reduces disruptions and delays, ensuring a steady flow of products to meet customer demand.
``The trend to re-shore is growing as companies recognize the total cost of offshoring, including the hidden costs of quality, delivery, and intellectual property risks.``
- Douglas K. Woods, President of AMT – The Association For Manufacturing Technology
The proximity of production also enables closer collaboration between manufacturers, suppliers, and partners. Enhanced communication and transparency foster stronger relationships and higher quality throughout the manufacturing process. Companies can respond swiftly to market changes and introduce new products faster when production is regional rather than overseas.
The Scale of the Shift to U.S. and Mexico
According to a 2021 report by Kearney, “62% of manufacturers surveyed have started either near-shoring or reshoring their production capacities closer to the U.S.” American firms were expected to re-shore nearly 350,000 jobs in 2022, a 25% increase over 2021. If this trend continues, near-shoring and re-shoring could reduce Asia-originating exports to the U.S. by as much as 20% by 2025 and 40% by 2030.
Moreover, a report by AlixPartners found that Mexico, a popular nearshoring destination, has lower manufacturing costs than China when factors like freight, exchange rates, and inventory carrying costs are considered.
Key Factors Driving the Shift to North America
Several interrelated forces are driving this renaissance in North American manufacturing:
- The COVID-19 pandemic exposed the fragility of overseas supply chains, as lockdowns and transport delays made long-distance coordination extremely difficult. This prompted manufacturers to seek more resilient localized production.
- Automation, robotics, and AI have made U.S. factories drastically more efficient and cost-effective, reducing historical dependence on distant low-cost labor.
- Consumers increasingly demand locally made goods with lower carbon footprints from environmentally sustainable operations.
- Geopolitical tensions, trade wars, and nationalism have made reliance on imports from certain countries less stable and predictable.
- Rising labor costs in Asia combined with stagnant U.S. wages have equalized the historical cost gap between overseas and domestic production.
- Excessively long and complex global supply chains carry hidden risks that manufacturers are now recognizing.
- Stricter customs requirements have diminished savings from offshore labor arbitrage.
Though there are many reasons for this shift, these are the primary factors that collectively contribute to the near-shoring trend as businesses seek a more robust, sustainable, and competitive approach to manufacturing.
``The pandemic has exposed the vulnerabilities of complex global supply chains built on lean manufacturing principles. This is leading many companies to rethink their outsourcing strategies and bring production closer to home.``
- Willy Shih, Professor, Harvard Business School
The nearshoring trend isn’t limited to small businesses. Many large companies are moving their production as well. For instance, according to a study by the Boston Consulting Group, 54% of U.S.-based manufacturers with over $1 billion in revenue are considering reshoring.
Overall, the strategic shift towards re-shoring and near-shoring in the U.S. manufacturing industry has proven to be advantageous for businesses. Enhanced reliability, faster speed to market, and lower shipping costs are just some of the benefits that companies can enjoy by implementing these strategies.
Mexico’s Manufacturing Growth: A Strategic Advantage in the Global Market
Mexico’s manufacturing sector is experiencing a significant upswing, driven by its strategic geographical location, abundant resources, and highly skilled workforce. As the largest exporter to the U.S., Mexico’s manufacturing exports are projected to grow from $455 billion to an estimated $609 billion in the next five years, representing over 10% of the country’s GDP according to Morgan Stanley Research. This growth is largely attributed to the manufacturing of goods such as automobiles, electronics, and other high-tech products, which form the backbone of Mexico’s export revenue.
Driving Forces Behind Mexico’s Manufacturing Growth
According to Colliers, several factors contribute to the attractiveness of Mexico as a nearshoring destination:
Proximity to the U.S. Market: Mexico’s geographical location allows for faster delivery times, improved communication, and enhanced collaboration between manufacturers and suppliers.
Favorable Trade Agreements: Mexico’s free-trade agreements with the U.S. and Europe help reduce costs associated with import duties, customs fees, and storage fees.
Skilled Workforce: Mexico offers access to a large, highly educated workforce, providing a solution to labor shortages in the U.S.
Supply Chain Resilience: Nearshoring to Mexico allows businesses to have more control over their supply chains, enabling them to swiftly respond to disruptions and reduce risk.
Intellectual Property (IP) Protection: The USMCA trade agreement includes provisions for IP protection, offering additional security for businesses.
The Future of Mexico’s Manufacturing Growth
The trend of nearshoring to Mexico is expected to continue, driven by the aforementioned advantages. Companies such as BMW, Nissan, Honda, Ford, and Audi have already moved their production activities to Mexico, and this trend is expected to accelerate.
Furthermore, according to this report from Deloitte Insights, continued growth is expected over the next five years giving Mexico a much-needed economic boost and consolidating the country’s position as an international logistics hub. Although it’s transportation equipment that has received the bulk of manufacturing foreign direct investment (FDI), in recent years other sectors have grabbed investors’ attention as well, such as electrical accessories and appliances, and communications and computer equipment. As more companies recognize the benefits of nearshoring, Mexico’s manufacturing sector is poised for sustained growth, offering new opportunities for businesses and investors alike.
Embracing the Change To Bring Manufacturing Closer to Home
``If U.S. manufacturing is to be less dependent on China, we think the path will be via Mexico. Nearshoring is expected to be a long and sustained race that could help build new ecosystems in Mexico’s existing manufacturing hubs.``
- Nikolaj Lippmann, Equity Analyst, Morgan Stanley Research
Re-shoring and near-shoring is more than just a business strategy – it is a transformative step toward a more robust and sustainable U.S. manufacturing landscape. Those who recognize and adapt to these trends will undoubtedly thrive in the evolving global market
Production closer to home is more responsive, adaptable, economical, and environmentally sustainable. This positions American companies to meet customer needs quickly while maintaining high quality – cementing their leadership in the global marketplace.
Partnering with a Contract Manufacturing Expert
To leverage the strategic benefits of nearshoring, choose an experienced contract manufacturing partner that you can rely on. With over 45 years of manufacturing experience and strategic operations in California and Mexico, Manufactured is the ideal partner for rapid and reliable contract manufacturing.
Manufactured’s unrivaled service, extensive experience, and strategic North American facilities provide a fast and flexible contract manufacturing solution. Specializing in precision electronics, metal fabrication, PCBA, cable assemblies, wire harnesses, sheet metal components, full systems integration, and more, Manufactured’s proven track record offers expertise in complex electromechanical system assemblies that enable rapid scaling and quick-turn projects.
To discuss your specific contract manufacturing needs and get a competitive quote, contact Manufactured today. Our experienced team can help you take advantage of the strategic shift happening in U.S. manufacturing so you can benefit from the quality, speed, and reliability that nearshore state-of-the-art contract manufacturing services can bring.
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