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Wednesday, August 20, 2014

CSCMP: Viva México When It Comes to Nearshoring

Mexico has been attracting interest from companies as a reshoring and nearshoring option to manufacturing in Asia. So much so that the upcoming Council of Supply Chain Management Professionals (CSCMP) conference in Denver, Oct. 20-23, will feature former Mexico president Felipe Calderón as a keynote speaker (Oct. 21), and include a session that deals with nearshoring in the country.

This past summer I wrote that shifts in labor costs between China and Mexico give the latter a significant price advantage. Add to this the major reductions in transit time from factories in Mexico to the U.S. and Canada versus China, relatively low energy costs, lower total landed costs, and 44 free-trade agreements that allow many Mexico-made products into countries at low or no duties and the advantages of moving or establishing manufacturing there are considerable.

Credit: Salvatore Vuono at FreeDigitalPhotos.net

Credit: Salvatore Vuono at FreeDigitalPhotos.net

Mexico, of course, has challenges, not least of which are logistical complexity, corruption, and crime. However, Hector Estrada, manager of southern border customs at third-party logistics provider C.H. Robinson, will discuss how companies can effectively deal with these in a session at the Denver conference titled “Nearshoring—What You Need to Know.”

One point that will come up in his presentation is the plan by the Mexican government, under new president Enrique Peña Nieto, to invest 4 trillion pesos ($300 billion) of public and private money on infrastructure throughout the country during his six-year term (2012-18). Investment targets include new highways (as many as 15), rail lines, and telecommunications, as well as upgrades to ports.

According to Reuters, one of Peña Nieto’s goals is to increase annual economic growth to 6 percent from the 2 percent average of the past decade. Another is to close the “digital gap” among citizens; only 40 percent of Mexico’s population have Internet access.

Peña Nieto’s plans would profoundly change the ability to do business in Mexico. How well they work, or if they get off the ground, remains to be seen.

Nevertheless, there are clearly major opportunities and big cost benefits for companies looking to relocate operations or supply chains south of the border. Now is a good time to pay close attention to what Mexico offers and plans.

 

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