Nearshoring in Mexico: Seizing Opportunities and Facing Challenges

Introduction

This issue brief examines the potential economic impact of nearshoring in Mexico and explores the concept of nearshoring and its growing relevance amid shifting global value chains (GVCs) and regional trade blocs. In this context, Mexico emerges as an attractive nearshoring destination due to its geographical proximity to the U.S., participation in free trade agreements, a skilled and cost-competitive labor force, business-friendly programs, extensive logistics networks, experience in manufacturing sectors, and overall economic stability.

Many economic sectors should be expected to benefit from nearshoring in Mexico. Sectors, such as the automotive industry, electronics, medical devices, aerospace, semiconductors, machinery, textiles, and household goods — industries already embedded in North American value chains — are at the forefront to receive these benefits. While recent foreign direct investment (FDI) data does not yet show a significant uptick from nearshoring, there are already promising signs, including plans for expansion by foreign companies, increased industrial real estate occupation, and Mexico’s rising market share in U.S. imports in comparison with China’s status. However, to unleash its full nearshoring potential, Mexico must address key challenges, which are discussed later in this brief. 

Overall, this brief: 

1. Explains the concept of nearshoring and its growing relevance in the global economic context. 
2. Identifies the key factors that make Mexico an attractive destination for nearshoring activities.
3. Determines the productive sectors in Mexico that are most likely to benefit from increased nearshoring, primarily those already integrated into North American value chains. 
4. Assesses early signals of FDI flows and business expansion plans related to nearshoring activities in Mexico. 
5. Highlights the key challenges Mexico needs to overcome to unleash its nearshoring potential fully.

The Rise of Nearshoring’s Global Economic Relevance

GVCs are the drivers of the global economy.[1] The formation of complex GVCs has been accompanied and facilitated by FDI and a general positive attitude toward the creation of trade agreements on a global scale. However, the global financial crisis (GFC) of 2007–08 resulted in a slowing of economic globalization.[2] The world economy thus entered a new phase often referred to as slowbalization.[3] In effect, the GFC hit the world economy after decades of accelerated globalization and fed a sense of skepticism over the unrestrained growth of the world economy. This was further reinforced by the COVID-19 pandemic, which appeared after a decade of slow globalization. 

In any event, as Shannon K. O’Neil argues, globalization had been, above all, “a regional affair.”[4] In fact, when supply chains were the dominant force in the world of global manufacturing, which is especially sensitive to distance, three geographic clusters of manufacturing were formed: North America, Europe, and Asia along with three well-defined centers as the U.S., Germany, and China.[5] The COVID-19 pandemic only accelerated the shift toward commercial regionalism. Similarly, according to O’Neil, the changing political landscape further encouraged not only nationalization but also regionalization.[6]

The trade war between the U.S. and China, which started in 2018, characterized the years prior to the COVID-19 pandemic’s onset. In addition, partly because of the global economic impacts of the pandemic, active industrial policy is making a comeback in the U.S. A similar course is taking place in Europe’s and other advanced countries’ industry policy with a magnified role of the public sector in national economies. This trend is marked by the strengthening of regional clusters in high-tech industries to reduce dependence on foreign markets.[7] In China, there is also a tendency to strengthen regional economic clusters in the face of trade tensions with the U.S.[8] 

Moreover, industrial policy in advanced countries aims to reduce their carbon footprint in the face of climate change. In this sense, GVCs are thought to have negative ecological effects because of high levels of freight transport and the displacement of production onto less developed countries with laxer environmental regulations. As a result, more environmentally friendly industrial policies in advanced countries could also affect the dynamics of GVCs.

The fourth industrial revolution or Industry 4.0 plays an important role in the reconfiguration of some of the GVCs and is related to U.S. industrial policy, which targets strategic sectors for advancement in the technology race.[9] In this sense, the U.S. appears to be using strategies based on economic nationalism, such as the decoupling of GVCs and the promotion of onshoring practices — also known as reshoring — to confront and undermine the growth of Chinese companies, its main technological rival.[10]

Future globalization characterized by progressive regionalization may also be increasingly represented by “friend-shoring” — the term emerged from the U.S.-China trade war in a document published by the White House, which encourages U.S. companies to reshore or move to friendlier countries.[11] This would imply a trend toward strengthening regional value chains (RVCs). In this way, the production of goods and the sourcing of certain inputs that were previously executed through broader GVCs are beginning to be localized either more regionally or locally. 

This new localization also comes in the form of nearshoring. The term, “nearshoring,” refers to “the relocation of operations to a nearby country, with a similar time zone, taking advantage of the know-how of the workforce of neighboring economies, knowledge of the production culture and years of experience” as well as accelerated delivery times.[12] As Yoon Heo notes, this “trend is expected to be more prevalent in countries close to major consumer markets as manufacturing supply chains diversify and become more regional.”[13]

According to Savills World Research, there is an expectation of greater diversification of supply chains in the future, as well as an increasing level of nearshoring.[14] However, “full-scale onshoring is likely to be limited to critical and less cost-sensitive goods, though longer-term increased automation in the manufacturing process may play a role” in the future toward a greater level of onshoring.[15] Moreover, “as trade tensions increase, the WTO’s relative absence leaves the world’s trading system rudderless and fragile.”[16] As a result, countries could resort to less costly trade agreements that they can oversee themselves, encouraging further regionalism.[17]

Factors Driving Nearshoring in Mexico

US Government Incentives 

Given that the cost of nearshoring — also known as friend-shoring, or ally-shoring — has increased significantly, the North American area will initially experience the greatest impact of these rising costs. Recent U.S. government initiatives aiming to bolster the country’s industry support this point: 

• Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act, which lays out investment plans and incentives to support semiconductor manufacturing, research and development (R&D), and supply chain security in the U.S. 
• Infrastructure Investment and Jobs Act, which establishes requirements and incentives to support R&D and energy infrastructure and cybersecurity and to secure a supply chain for critical minerals and battery materials. 
• CHIPS and Science Act of 2022, which is part of a broader set of China-focused measures and provides funding to support semiconductor manufacturing, R&D, and supply chain security in the U.S. 
• Inflation Reduction Act (IRA) of 2022, which aims to support investments in domestic energy production, incentivize the procurement of domestically produced or assembled inputs and outputs, and boost R&D in clean energy technologies.[18]

Mexico’s Competitive Edge 

In this context, Mexico stands to benefit enormously from these trends given its history of productive integration with the U.S. in several manufacturing sectors. Several studies have also extensively addressed the factors that make Mexico an attractive destination for nearshoring.[19] Adrian E. Huerta and Ana Pous Avila’s report on nearshoring opportunities in Mexico lists these factors, which include the following:

• Geographical Proximity: Mexico is strategically located close to the U.S., one of the largest consumer markets and a global economic power, which has additionally deployed an industrial policy designed to reshore its supply chains. This proximity allows companies to reduce transportation times and costs, as well as facilitate logistics and coordination between operations in both countries, with fewer interruptions in the value chain. In addition to its vicinity to the U.S. border, “Mexico’s extensive coastline of over 11,000 kilometers is divided between the Atlantic coast (3,294 km) and the Pacific coast (7,728 km), and makes Mexico a natural bridge between the Atlantic and the Asia-Pacific region” — as much as it is a bridge between North America and South America.[20] Mexico’s location also translates into lower shipping costs and faster delivery times. Thus, this allows companies to maintain smaller inventories, which lowers overall transportation and warehousing costs. In addition, shorter supply chains tend to operate with a reduced level of risk, as minimizing the number of intermediaries builds a more secure supply chain and makes it easier to detect errors.
• Free Trade Agreements: Mexico has signed several trade agreements, such as the North American Free Trade Agreement (NAFTA) — now titled United States-Mexico-Canda Agreement (USMCA) — and other treaties with more than 50 countries, providing preferential access to various international markets.[21] This allows companies operating in Mexico to access global markets free of tariffs or at reduced tariffs. Under the provisions of the USMCA, almost all trade transactions between the signatory countries will be duty-free. In addition, Mexico’s northern and southern borders are free zones, where there is a reduction of Value-Added Tax (VAT) from 16% to 8% and a reduction of income tax (ISR in Spanish) from 30% to 20%.[22]
• Skilled and Competitive Labor Force: Mexico has a young and growing population, with an acceptable level of education — despite challenges to overcome — and training in various sectors of interest.[23] The Mexican labor force is generally known to be cost-competitive and technically skilled, which is attractive to companies seeking to reduce production costs without sacrificing quality.
• Competitive Labor Costs: Although labor costs have been gradually increasing in Mexico, largely due to a current policy of increasing the minimum wage levels, they are still lower compared to other developed countries, such as the U.S., Western European countries, and even China. This allows companies to reduce their operating costs and improve competitiveness.
• The IMMEX Program: The Industria Manufacturera, Maquiladora y de Servicios de Exportacion (Manufacturing, Maquiladora and Export Services Industry or IMMEX) is an incentive program that allows foreign companies to operate in Mexico easily and cheaply. What is a maquiladora? A maquiladora is a factory in Mexico that is owned and managed by a foreign company that manufactures in Mexico and exports these products to other countries. With IMMEX, it is not necessary to pay the 16% VAT on raw materials, equipment, and other goods imported for manufacturing needs. Plus, if finished products qualify as “made in Mexico,” it can be exported to the U.S. and Canada tariff-free.[24]
• Extensive Logistics Network and Industrial Facilities: Although considerable investment is still required, Mexico has made progress in modernizing its infrastructure.[25] Mexico has ports, airports, and land transport networks that facilitate the movement of goods and products both within the country and to other destinations. In addition, Mexico offers first-class industrial real estate. Because manufacturing has been such an important part of the country for so long, there are sufficient industrial facilities, most of which are international-standard Class A warehouses, located in enclosed industrial parks or free-standing, secure buildings.[26]
• Shelter Services: Among the main advantages of manufacturing in Mexico is the option of working with a shelter service provider. Thus, “when manufacturing in Mexico, one can choose to operate under a shelter or create a new legal entity to obtain a maquiladora license. Under a shelter operation, foreign manufacturers work with the licenses and permits already in place (which includes IMMEX certification).”[27] The host company handles the business’s administrative and legal tasks and regulatory compliance of the facility, allowing the manufacturing company to focus on production, quality control, and growth.[28] In this way, the foreign company maintains full control of the manufacturing process, owns all assets, and protects its intellectual property. Although the employees are part of the host company, they are trained and managed by the manufacturing company.[29] 
• Extensive Experience in Specific Industries and Participation in GVCs: The country has extensive experience in industries, such as the automotive industry, electronics, manufacturing, and technology services, among others, which makes it an attractive destination for companies operating in these sectors. The participation of Mexico in GVCs is mainly through backward linkages, meaning that Mexico imports inputs to produce goods and services for export. Manufacturing, automotive, electronics, equipment, and medical devices industries play a significant role in Mexico’s integration into GVCs, which has deepened over time, with an increase in backward linkages and a growing share of imported inputs in its final goods. The country’s participation in GVCs is primarily driven by trade with the U.S., especially in the manufacturing sector. Mexico’s automotive and electronics sectors are particularly important in GVCs, attracting investments and contributing to the country’s role in the supply chains of North America.
• Political and Macroeconomic Stability: Mexico has maintained relative political and economic stability compared to some other countries in the region. This generates confidence in investors and businesses, as uncertainty associated with possible abrupt changes in government policies or the economy is reduced.

As Celso Garrido points out, Mexico has the advantage as a nearshoring destination that has been built up over more than six decades with the presence of specific elements for the operation of maquiladora export industries with legislation that clearly establishes the operating conditions for companies and the permanence in Mexico of complex GVCs in the framework of the USMCA, with a clear system of intellectual property protection.[30] Likewise, the country is attractive for investment and nearshoring activities due to its industrial real estate activity, which is vital for investors’ location decisions.

Identifying Nearshoring’s Productive Sectors

It is relatively straightforward to assume that the industries most favored by the nearshoring phenomenon will be those that are already embedded in GVCs, especially in the North American regional bloc. Moreover, what was described in the previous section points to this conclusion, especially considering the policies implemented by the U.S. in the context of the trade war with China.

Several studies agree that the greatest opportunities for Mexico lie in sectors, such as the automotive industry and auto parts, computers and accessories, medical equipment and devices, electronics manufacturing, and aerospace.[31] Similarly, opportunities are detected in semiconductors, industrial machinery, toys, furniture and household goods, clothing, and textiles.[32]

The analysis of Mexico’s export potential through the International Trade Centre (ITC) tool indicates that the products with the greatest potential are: 

• Motorized vehicles, not elsewhere specified, (nes). 
• Automatic data processing machines. 
• Automobiles for transporting goods with spark ignition engine less than or equal to 5 tons. 
• Vehicle parts and accessories, nes.
• Television receivers, among others.[33] 

Motor vehicles for transporting goods with spark ignition engine less than or equal to 5 tons is the product exported by Mexico with the highest supply capacity, and motor vehicles is the product facing the highest demand potential in the world. In all cases, the main destination market for these principal products with the greatest export potential is the U.S.

On Oct. 11, 2023, the Mexican government announced a plan of tax incentives aimed at making FDI more profitable in six productive sectors: semiconductors, automotives (especially in electromobility), electrical and electronic equipment, medical devices and pharmaceuticals, agribusiness, and human and animal food.[34] It also issued a decree creating the single window system (ventanilla única) for investors, on July 26, 2023, which seeks to receive investment procedures electronically to take advantage of nearshoring; the instrument came into operation in January 2024.[35]

In Huerta and Avila’s analysis, Mexico is in the top three suppliers to the U.S. in 44 of the 102 categories of manufacturing goods and is the main supplier in 11 of these same categories. The study concludes that with nearshoring the country has the capacity to occupy the top positions in 10 other categories, such as passenger cars, computers, telecommunications equipment, and household appliances. Mexico could be among the top three in five other categories, including toys and semiconductors.[36]

Assessing FDI Flows of Nearshoring

While it is still too early to assess the effect of nearshoring in Mexico, it is important to have preliminary information on investment inflows associated with this phenomenon and its target sectors. During the first quarter of 2023, the Banco de México’s Interview Program to Business Agents conducted consultations with the aim of examining first-hand when nearshoring would be expected to have the greatest benefit for various companies. The highest percentage of interviewees (40.6%) mentioned that the main effects would be observed in 2024—25, while 21.5% of the companies consulted estimated that main benefits would be observed during 2023. Also, a significant percentage (23.2%) anticipated that the process would take longer to materialize, expecting impacts to be observable from 2026 onward.[37]

The information by the Banco de México gathered reveals that the nearshoring process is taking place gradually. Thus, 42.5% of those interviewed responded that they have held discussions within their company about the ways in which they can benefit from this phenomenon. This would imply that their companies may benefit, but plans are at an early stage. Almost 33% said they have plans to expand production or increase investment, and 30.7% have already signed new contracts with foreign companies or increased their production, with a similar percentage noting they have hired more staff, made use of more installed capacity, or rented more real estate. Finally, 27% reported having increased or being in the process of increasing production capacity by expanding existing plants or building new plants.[38]

According to the above information, it is possible that foreign companies are in the initial stages of offshoring to Mexico. Yet, it is hard to tell, as the evidence is still mixed. In this sense, nearshoring does not yet show a significant increase in FDI for the country. However, there are some promising signs, although it is difficult to distinguish whether the FDI inflows are really a relocation or an expansion of activities in the country. In 2022, new investment accounted for 49.6% of total FDI in Mexico, the highest since 2013.[39] In addition, the occupation of industrial facilities in the country is growing.[40] Recent information, launched at 2023, confirms that Mexico has become the main supplier to the U.S. market, that country increased its market share in the U.S. market by 4.6%, while that of China decreased by 20.3%.[41]

While no adequate disaggregated information is currently available to identify the percentage of incoming investments due to nearshoring, analyses, such as one conducted by Deloitte in 2023, allow some inferences to be made about its impact in Mexico. According to this study, most nearshoring activity in the country is related to the usual suspects, i.e. the automotive and auto parts sector, as well as steel.[42] In addition, investments are concentrated in the central and northern regions of Mexico, capturing 89.6% of total FDI announced from 2021 to the first quarter of 2023.[43]

Nearshoring is not a new phenomenon in Mexico; its first wave took place a few years after NAFTA went into effect in 1994. In fact, Mexico went from being the third to the second largest trading partner of the U.S. in 2001, although with the entry of China into the WTO in that year, Mexico was displaced again to the third position in 2003.[44] As mentioned above, the U.S. trade war with China, together with the COVID-19 pandemic and the new U.S. industrial policy, have precipitated changes in the functioning of several GVCs that favor Mexico’s positioning in several sectors. Finally, it is important to distinguish new investments from expansion investments, as much of the FDI may not be greenfield investment, but only expansion of companies that are already operating in Mexico.

How To Address Challenges Facing Mexico’s Nearshoring Efforts

In the realm of nearshoring, Mexico stands at the threshold of transformative opportunities. However, to fully capitalize on this potential, there are several challenges that demand attention and strategic solutions.[45]

• Empowering Human Capital for Economic Growth: Nearshoring has propelled Mexico’s economic growth by attracting investments and generating job opportunities. Yet, the availability of skilled human capital remains a critical challenge. To bridge this gap, strategic investments in training and education programs are vital. By nurturing a highly skilled workforce, Mexico can unlock its competitive edge and attract a wealth of nearshoring prospects.
• Energizing Sustainable Development: Mexico’s nearshoring success is intricately linked to sustainable energy sources. The scarcity of natural gas and renewable energy in certain regions poses a formidable hurdle for industrial growth and environmental sustainability. To surmount this challenge, Mexico must prioritize the development of renewable energy infrastructure, ensuring a reliable and eco-friendly energy supply for nearshoring endeavors. Moreover, Mexico has recently experienced a series of blackouts, which may signal the insufficiency of current energy supplies for companies to increase their operations in Mexico and — closer to the issue of nearshoring — to attract greenfield investment.
• Improving Infrastructure and Connectivity: In addition to human capital and energy challenges, Mexico also faces the task of improving its infrastructure and connectivity to harness its nearshoring potential fully. Enhancing transportation networks, expanding digital connectivity, and upgrading logistics systems are essential steps toward creating a seamless and efficient nearshoring ecosystem. By investing in infrastructure development, Mexico can attract more businesses and foster economic growth.
• Securing Stability in an Insecure Environment: Insecurity, fueled by drug trafficking, poses a significant obstacle to Mexico’s nearshoring aspirations. Companies considering Mexico as a nearshoring destination face security concern that impact their operations and decision-making processes. Tackling these security issues head-on is paramount to foster investor confidence and create a secure environment that nurtures sustainable economic development. Collaborative efforts among the government, private sector, and civil society are crucial to overcome this challenge.

Infrastructure and connectivity play a pivotal role in ensuring the seamless execution of nearshoring operations. To attract and retain businesses, Mexico must invest in cutting-edge transportation systems, robust logistics networks, and state-of-the-art digital infrastructure. This entails expanding road and rail networks, upgrading ports and airports, and fortifying internet connectivity and data networks.

Moreover, Mexico faces a digital divide that presents a formidable obstacle to achieving nationwide connectivity. To fully leverage the potential of nearshoring, bridging this divide is crucial, necessitating the extension of internet access to remote areas and the promotion of digital literacy initiatives.

By addressing these infrastructure and connectivity challenges, Mexico can foster an environment conducive to nearshoring, facilitating the seamless exchange of goods, services, and information. This not only benefits businesses but also contributes to regional development and fosters inclusive economic growth.

Conclusion

The emergence of nearshoring has significantly reshaped the global economic landscape, and Mexico has strategically positioned itself as a frontrunner in this transformative trend. By actively participating in GVCs, Mexico has emerged as a pivotal hub that offers a myriad of advantages for companies seeking to optimize their operations and enhance their competitive edge.

Despite the formidable hurdles, the opportunities presented by nearshoring are simply too significant to be disregarded. By investing in human capital development, prioritizing sustainable development, and ensuring a secure environment, Mexico can surmount these obstacles and solidify its position as a premier nearshoring destination.

Furthermore, the advent of Industry 4.0, with its emphasis on digital transformation and automation, opens new horizons for nearshoring in Mexico. By harnessing these technologies, Mexico can further enhance its competitive edge and establish itself as a trailblazer in nearshoring excellence.

In summary, nearshoring represents a transformative opportunity for Mexico and the global economy. By capitalizing on its unique pull factors and addressing key challenges head-on, Mexico can unlock its full potential and cement its status as a premier nearshoring destination, thereby contributing to the global economic paradigm shift.

Notes

[1] Fernando Robles and Nila M. Wiese, Business in Latin America: Strategic Opportunities and Risks, 2nd ed. (New York: Routledge, 2023), 392. 

[2] Pompeo Della Posta, “Global Value Chains and the Slowing Down of Globalisation,” in “New Globalization Challenges and EU Trade Policy,” edited by Annette Bongardt and Francisco Torres, special issue, Perspectivas — Journal of Political Science 27 (December 2022): 62–76, 63, https://doi.org/10.21814/perspectivas.4564.

[3] The Economist, Slowbalisation: The Future of Global Commerce, January 24, 2019, https://www.economist.com/weeklyedition/2019-01-26; Pol Antràs, “De-Globalisation?: Global Value Chains in the Post-COVID-19 Age,” National Bureau of Economic Research, Working Paper 28115 (November 2020), https://doi.org/10.3386/w28115; and Gita Gopinath, “Cold War II?: Preserving Economic Cooperation amid Geoeconomic Fragmentation” (plenary speech, 20th World Congress of the International Economic Association, Medellin, CO, December 11, 2023).

[4] Shannon K. O’Neil, The Globalization Myth: Why Regions Matter (New Haven and London: Yale University Press, 2022), 32. 

[5] Economics Commission for Latin America and the Caribbean (ECLAC), Foreign Direct Investment in Latin America and the Caribbean 2020 (Santiago: United Nations, December 19, 2020), 14, https://hdl.handle.net/11362/46541.

[6] O’Neil, 143. 

[7] Ruoxi Yu et al., “Has the Establishment of High-Tech Zones Improved Urban Economic Resilience?: Evidence from Prefecture-Level Cities in China,” Land 13, no. 2 (February 2024): 1–22, https://doi.org/10.3390/land13020241.  

[8] Christian Teipen, Petra Dünhaupt, Hansjörg Herr, and Fabian Mehl, eds., Economic and Social Upgrading in Global Value Chains: Comparative Analyses, Macroeconomic Effects, the Role of Institutions and Strategies for the Global South (Cham, CH: Springer Nature, 2022). 

[9] Industry 4.0 describes “the digitalization of industrial systems and processes, and their interconnection through the Internet of things to achieve greater flexibility and individualization of production processes. It is a vision of the factory of the future or intelligent factory. The digital transformation of industry and companies with the integration of new disruptive technologies, such as Big Data, the cloud and cybersecurity, all framed in intelligent cities that are producing the advent and deployment of the fourth industrial revolution.” (Luis Joyanes Aguilar, Industria 4.0: La Cuarta Revolución Industrial [Madrid: Alfaomega, 2017], 1, quoted in Gustavo Eduardo Fernández Villacrés et al., “A Didactic Model with Technology 4.0 for Ubiquitous Learning at the UNIANDES University of Ecuador,” in Innovation and Research: A Driving Force for Socio-Econo-Technological Development, edited by Miguel Botto-Tobar, Marcelo Zambrano Vizuete, and Angela Díaz Cadena, Advances in Intelligent Systems and Computing 1277 [Cham, CH: Springer Nature, 2021], 151–62, 155). The Fourth Industrial Revolution brings with it a trend toward the full automation of manufacturing with the creation of smart factories by integrating cyber-physical (virtual and physical) manufacturing systems (Joyanes Aguilar, 3).

[10] For a detailed analysis of economic nationalism and U.S.-China trade relations, see Yoon Heo, Free Trade and the US-China Trade War: A Network Perspective, Routledge Studies in the Modern World Economy (New York: Routledge, 2023). Samuel Garcia Sepulveda provides a definition of “reshoring”: “Reshoring, also called onshoring, involves moving a productive operation that moved abroad back to the country from which it was originally relocated” (“El reshoring, también llamado onshoring, implica mover una operación productiva que se trasladó al extranjero de regreso al país desde el cual se reubicó originalmente”) (“Qué es Offshoring, Nearshoring y Reshoring — y cómo se Beneficia un Estado en México,” World Economic Forum, January 17, 2023, https://es.weforum.org/agenda/2023/01/explicado-que-es-offshoring-nearshoring-y-reshoring-y-como-se-beneficia-un-estado-en-mexico/).

[11] The White House, Building Resilient Supply Chains, Revitalizing American Manufacturing, and Fostering Broad-Based Growth: 100-Day Review under Executive Order 14017, June 4, 2021, 8, https://www.whitehouse.gov/wp-content/uploads/2021/06/100-day-supply-chain-review-report.pdf.

[12] This definition of “nearshoring” is from Sepulveda’s piece from the World Economic Forum, and the original Spanish reads as follows: “El nearshoring es la relocalización de operaciones a un país cercano, con una zona horaria similar, aprovechando el know-how de la mano de obra de las economías limítrofes, el conocimiento de la cultura productiva y los años de experiencia.”

[13] Heo, 5. 

[14] Paul Tostevin and Kevin Mofid, “Covid-19 and Global Manufacturing Supply Chains,” Savills World Research, July 2, 2020, 5, https://pdf.euro.savills.co.uk/global-research/spotlight-global-manufacturing-supply-chains-july-2020.pdf.

[15]Tostevin and Mofid, 5. High wages may deter companies from opening operations in the U.S. Yet, with smart manufacturing, automation and 3D printing gaining ground, labor costs may not matter as much as before, and skilled workers may become more attractive. Also, physical proximity is becoming more important as customers become accustomed to faster delivery times and gratification, so the onshoring trend may start to gain momentum soon.

[16] O’Neil, 143. 

[17] O’Neil, 143. 

[18] For an overview of current U.S. industry policy, Andres B. Schwarzenberg, Industrial Policy and International Trade, CRS Report Prepared for Members and Committees of Congress (Washington, DC: Congressional Research Service, updated February 14, 2024).

[19] Adrian E. Huerta and Ana Pous Avila, “Mexico Equity Strategy,” Latin American Equity Research (J.P. Morgan, August, 18, 2022); Celso Garrido, México en la Fábrica de América del Norte y el Nearshoring (Santiago: United Nations, August 10, 2022), https://hdl.handle.net/11362/48056; Mexican Institute for Competitiveness (IMCO), “Nearshoring: Oportunidad Que Desafía a las Entidades Mexicanas,” Centro de Investigación en Política Pública, May 30, 2023, https://imco.org.mx/nearshoring-oportunidad-que-desafia-a-las-entidades-mexicanas/; Diego López, Samuel Vázquez, and Carlos Serrano, “Outlook: Foreign Investment, Mexico’s Industrial Parks Association Survey,” BBVA Research, July 2023, https://www.bbvaresearch.com/wp-content/uploads/2023/07/Nearshoring-Outlook-Eng-10Jul23.pdf; and Roberto Durán-Fernández, “Nearshoring y México: Pasado, Presente, y Visión de Futuro de la Globalización,” in Nearshoring: Retos y Oportunidades para la Integración y el Fortalecimiento de los Cadenas Globales de Valor en México, edited by Osmar Hazael Zavaleta Vázquez and Santiago Velázquez Urgel (Mexico City: Tirant lo Blanch and Tecnológico de Monterrey, 2024), 15–31.

[20] Huerta and Avila, 13.

[21] Huerta and Avila, 18. For a list of trade agreements signed by Mexico, see “Trade Agreements,” International Trade Administration, last modified November 5, 2023, https://www.trade.gov/country-commercial-guides/mexico-trade-agreements.

[22] PricewaterhouseCoopers International Limited (PwC), “Mexico: Corporate — Tax Credits and Incentives,” PwC Mexico, last modified January 18, 2024, https://taxsummaries.pwc.com/mexico/corporate/tax-credits-and-incentives.

[23] Huerta and Avila, 9.

[24] Huerta and Avila, 3 and 16.

[25] Huerta and Avila, 20. 

[26] Huerta and Avila, 1–2.

[27] Huerta and Avila, 17. 

[28] Huerta and Avila, 3.  

[29] Huerta and Avila, 17. 

[30] Garrido, 48.

[31] Huerta and Avila; Banorte Research, “Zoom Nearshoring,” Grupo Financiero Banorte, March 6, 2023, bit.ly/4f1E02t; and Juan Navarro Martínez, Rosa María Soriano Miras, and Antonio Trinidad Requena, “La ‘Frontera’ en la Nueva Geografía Económica Global: Los Casos de México y Marruecos,” in “Monográfico: Estructura y Dinámica de las Cadenas Globales de Valor,” edited by Carlos de Castro, Manuel Gracia, and María José Paz, special issue, Papeles de Europa 36 (May 2023): 1–16. 

[32] Huerta and Avila, 3. 

[33] International Trade Centre (ITC), “Export Potential Map,” https://exportpotential.intracen.org/en/?type=country&code=484. 

[34] Mexico Presidencia de la República, “DECRETO por el que se otorgan estímulos fiscales a sectores clave de la industria exportadora consistentes en la deducción inmediata de la inversión en bienes nuevos de activo fijo y la deducción adicional de gastos de capacitación,” Diario Oficial de la Federación, October 11, 2023, https://www.dof.gob.mx/nota_detalle.php?codigo=5704676&fecha=11/10/2023#gsc.tab=0.

[35] Mexico Presidencia de la República, “DECRETO por el que se crea la Ventanilla Única para Inversionistas y el Registro Único de Proyectos de Inversión,” Diario Oficial de la Federación, July 26, 2023, https://www.dof.gob.mx/nota_detalle.php?codigo=5696825&fecha=26/07/2023&print=true.

[36] Huerta and Avila, 5. 

[37] Banco de México, “Regional Economic Report, January–March 2023,” June 2023, slide 28, https://www.banxico.org.mx/publications-and-press/regional-economic-reports/%7B112717AC-47F5-BF56-F93D-55B82F99550A%7D.pdf.

[38] Banco de México, slide 28. 

[39] “Distribution of Foreign Direct Investment (FDI) in Mexico in 2022, by Investment Type,” Statista, https://www.statista.com/statistics/709887/fdi-mexico-type/. 

[40] SiiLA News, “Industrial Parks in Mexico: Catalysts for Economic Growth and Innovation,” REsource MX, August 2, 2023, https://siila.com.mx/news/industrial-parks-mexico-catalysts-economic-growth-innovation/6419/lang/en. 

[41] “Mexico Dethrones China as Top Exporter to the US in 2023,” Mexico News Daily, https://www.linkedin.com/pulse/mexico-dethrones-china-top-exporter-us-2023-mexico-news-daily-u5yuc/. 

[42] Alessandra Ortiz et al., “Nearshoring in Mexico: A Rapidly Emerging Phenomenon,” Deloitte, slide 10, https://www2.deloitte.com/content/dam/Deloitte/mx/Documents/finance/2023/Econosignal-Nearshoring-in-Mexico.pdf.

[43] Ortiz et al., slide 20.

[44] Huerta and Avila, 16. 

[45] Ricardo Ernesto Buitrago Rubiano, “Las Condiciones Institucionales como Factor Determinante del Nearshoring en México,” in Nearshoring: Retos y Oportunidades para la Integración y el Fortalecimiento de los Cadenas Globales de Valor en México, 94–100. 

This publication was produced in collaboration with the Baker Institute Center for the U.S. and Mexico. Wherever feasible, this research was reviewed by outside experts before it was released. Any errors are the authors’ alone.

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