Mexico More Popular than U.S. for Near-shoring

When it comes to near-shoring, the practice of bringing manufacturing operations back closer to home, most U.S.-based companies are choosing Mexico rather than the United States, by a 3-to-1 margin. According to a recent poll of senior executives by AlixPartners, a global business advisory firm, 63% chose Mexico as the most attractive locale for re-sourcing manufacturing operations closer to the U.S. market.

The survey also found that 9% of executives surveyed have already taken efforts to near-shore manufacturing operations and another 33% plan to do so within the next three years. Additionally, just 19% say they have experienced supply chain disruptions in Mexico due to security issues.

“While safety and security in Mexico are certainly issues to be taken very seriously, our survey suggests that many companies believe these issues can be effectively dealt with,” says Foster Finley, managing director at AlixPartners and head of its Logistics & Distribution Practice. “As companies think about near-shoring production that was previously offshored – to respond to rising labor costs overseas, exchange-rate changes, etc. – Mexico is obviously high on their lists.”

According to the survey, Mexico’s average ranking for attractiveness among those likely to near-shore was more than seven times that of Brazil’s and countries in Central America combined.

The survey also polled executives on plans to offshore current U.S. operations, and found that 37% of respondents have already completed, or are in the process of offshoring, while 27% expect to offshore U.S. operations within the next three years. Of those who have offshored or plan to offshore, Mexico also topped the list as the most attractive locale, beating out the BRIC countries (topping China narrowly and India, Brazil and Eastern Europe by wide margins).

“Despite security concerns in Mexico, the country has a lot of appeal right now because of its proximity to North American demand and the continuing need of many companies to improve their working-capital positions,” says Chas Spence, a director in the Latin American Manufacturing Practice at AlixPartners. “That appeal could grow if fuel prices continue to rise globally.”

In terms of the expected advantages to be gained from near-shoring, lower freight costs, improved speed-to-market times and lower inventory costs were the top three reasons cited on average. Other reasons included “time-zone advantages” (easier management coordination, etc.) and improved “cultural alignment” with North American managers.

“In-transit inventory, in particular, was a high priority among those interviewed,” says Russ Dillion, a vice president in the Latin American Manufacturing Practice at AlixPartners. “Obviously, shipping products in from long distances eats up a lot of inventory expense, and that’s something companies would like to improve if possible.”

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