Founder and Managing Director of Nepanoa, accompanying multinational business through expansion and transformation endeavors.
Nearshoring has become increasingly popular among businesses striving to gain greater competitive advantages and insulate their operations from current global market disruptions. This entails relocating business activities to countries closer to their final customers, which can help cut costs and enhance overall business efficiency.
Among the front-runners in the field, Mexico is emerging as a particularly attractive option for these relocations, as it can offer trade, labor and logistical advantages. From my perspective, it is especially appealing for nearshoring in manufacturing, logistics and financial services thanks to its advantageous location, labor expenses and access to a skilled workforce.
While much has been said about the benefits of nearshoring to Mexico, as with any other business strategy, a comprehensive understanding of the risks involved is necessary. For Mexico, a thorough grasp of the current sociopolitical, security and economic challenges afflicting the country is vital to effectively navigate the way forward. In doing so, businesses can better structure their strategies to mitigate and neutralize these risks, thus ensuring and insulating their operations and, ultimately, their success.
Based on my experience helping companies expand into Mexico, here are the risks for which I recommend preparing.
Political Environment
One of the most pressing risks is the country’s political environment, where unpredictable changes in government policies, regulatory requirements and labor laws can create challenges for businesses. A prime example involves the energy policy reform promoted by President Andres Manuel Lopez Obrador, which has implications for companies in the manufacturing and logistics sectors. Moreover, I’ve found that Mexico’s legal and regulatory landscape, including labor guidelines, tax regulations and FDI legislation, can be quite convoluted. This further stresses the need for a comprehensive understanding of the law of the land.
To properly handle this, businesses should institute a comprehensive risk assessment and define mitigation strategies enriched from the advice of reputable and professional local experts, such as attorneys, accountants and consultants who have a grasp of the Mexican business environment. These experts can help organizations navigate the complexities of local legislation and policies, which will help them make better-suited decisions that support their operations and growth in the Mexican market, as well as maintain amicable relations with Mexican authorities.
Economy
Manufacturing operations and profitability can also be impacted by various economic risks such as inflation and fluctuations in global demand. While these are by no means exclusive to the Mexican economy, companies need to factor in these global trends to better secure their finances and mitigate risks. These considerations should include changing labor, transportation and logistical costs, as well as any additional costs related to the tailoring of company protocols and policies when dealing with legal and regulatory compliance.
Security
Companies doing business in Mexico should also confront considerable security threats, which can jeopardize not only the safety of their employees and facilities but also that of their supply chain networks. These threats can range from organized crime to extortion to corruption, among others.
Businesses can handle these risks by enacting effective security policies and solutions, including adopting background checks and periodic due diligence efforts for both employees and all relevant third parties; implementing cybersecurity safeguards; and developing clear, preventative and reactive measures and protocols if such risks materialize. Furthermore, establishing contact with local law enforcement and security firms in Mexico can provide more specialized assistance.
Supply Chain
Finally, effective supply chain risk management is critical for manufacturers wherever they are conducting operations. For Mexico, this is no different and will entail dealing with sourcing diversification, logistics and specific customs requirements. Any delays or disruptions in any part of the supply chain can affect manufacturing operations and increase costs.
To mitigate these risks, businesses should carefully identify and vet potential partners in Mexico, such as suppliers, logistics providers, legal advisors and staffing agencies, as well as map out current transportation and operational infrastructure to better build strong and resilient supply chains. These preventative measures will help ensure the business can continue operating even if one supplier or channel is compromised.
While nearshoring to Mexico can offer numerous advantages, it is not without risk. By taking these proactive measures, companies can effectively mitigate them and ensure a successful and profitable relocation. Conducting thorough risk assessments and properly developing contingency plans bolsters Mexico’s overall willingness to provide an optimal operational landscape for those seeking to carry out business within its borders.
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