Navigating Opportunities and Challenges in Reshoring and Nearshoring Manufacturing

Introduction

The manufacturing landscape is evolving, with the growing trend of reshoring and nearshoring gaining momentum. Four key factors have accelerated the need for companies to reconsider their supply chain strategies and move their manufacturing operations closer to home:

-Tariff threats

-Geopolitical world situation

-COVID (pandemic)

-Logistic variable cost

Understanding the Reshoring Process

To navigate the complexities of reshoring and nearshoring, companies typically follow a five-step approach:

-Explore alternate low-cost regions (mainly Vietnam and Mexico)

-Start a sourcing exercise.

-Define initial strategy (make vs buy)

-Work with the selected alternative source to mature the process.

-Define the path moving forward.

Companies that reach step 3 usually understand that Mexico won’t compete with Asia in terms of cost. However, they’re willing to split their supply between Asia and Mexico, initially allocating a 95% – 5% ratio, with the goal of finding a reliable supplier and jointly developing cost reduction programs.

The Importance of Local Knowledge and Personal Relationships

In the reshoring process, local knowledge of the industry and personal relationships play a crucial role, especially when considering Mexico as a manufacturing location. In Mexico, personal relationships and reputation are essential when conducting business, and trust must be established and mutually gained.

Establishing Operations in Mexico: Two Main Approaches

When a company decides to establish its own operations in Mexico, it can choose between two main strategies:

-Acquire a local, already established company in Mexico (M&A service)

-Greenfield/brownfield approach (Soft landing)

For the M&A service, companies should define criteria for potential targets, such as ideal location, size, sectors, potential synergies, desired quality standards, and desired expansion areas.

In the case of the greenfield/brownfield approach (soft landing), companies should consider factors like ideal location, land size, building size, power requirements, competitive labor rates, proximity to skilled labor resources, and access to universities with relevant industry talent.

Choosing the Right Partners for a Successful Reshoring Journey

When starting operations in Mexico, selecting the right partners is crucial for a smooth experience. There are four key partners you can’t afford to fail in choosing:

-Legal

-Real Estate

-Accounting

-HR

SCRG has a pool of partners with proven reputation and experience. We act on your behalf as the coordinator of the selected partners’ efforts, aligning them with your team and objectives, including government relationships to help you make informed location decisions based on hard data and not influenced by specific state or city interests.

As reshoring and nearshoring continue to reshape the manufacturing industry, understanding the process, leveraging local knowledge, and choosing the right partners are essential for success. By carefully evaluating opportunities and challenges, companies can make informed decisions and create a more resilient and flexible supply chain.