Manufacturing overseas is becoming increasingly complicated. Between higher shipping costs, longer wait times and an increased risk of problems arising with the shipments, more companies are turning to nearshore manufacturing.
In fact, a new study by Flatworld Solutions reveals a significant and sustained increase in interest in manufacturing in Mexico over the past five years. More specifically, U.S. searches for “manufacturing in Mexico” have grown from an index of 17 in 2019 to 58 in 2024. According to the study, there was a spike in interest in 2020 due to the COVID-19 pandemic, but the trend has sustained and the interest in manufacturing in Mexico is at its highest in 2024.
“Over the past several years, the manufacturing sector has faced persistent disruptions in the global supply chain as wars, pirating, geopolitical posturing and inclement weather combined to disrupt the global flow of trade,” says Ben Johnston, COO of Kapitus. “As a result, we expect to see a continued trend toward the repatriation of manufacturing to the U.S. and its near-shore allies.”
The Benefits of Nearshore Manufacturing
Aside from the factors mentioned above, there are a variety of benefits to manufacturing products closer to home. Jeff Walling, co-owner of ABM Equipment Co., notes some other benefits that include cheaper shipping, you can visit the plant easier and the people are easier to communicate with.
“Not only can you get responses back right away because of the time zone instead of trading messages day-by-day, but it’s much easier to find a Spanish-speaking purchaser than one who speaks Mandarin,” he says.
Probably one of the biggest drivers to manufacturing nearshoring, according to Walling, is that because of how much China has made from the last few decades, their labor is now more expensive than Mexico’s for some types of work. “We hear even China is outsourcing to them now,” he says.
Agreeing with Walling is Montage Partners’ VP Chris Norwood. “The single biggest reason is labor costs,” he says. “If you compare significant manufacturing hubs globally, China and Mexico are bigger hubs. China took over Mexico in 2010, so the labor costs there are rising.”
Norwood also mentions that shipping times are a big benefit of manufacturing nearshoring. “With the advent of Amazon and younger generations continuing to have purchasing power, you’re seeing same day/next day delivery continually being a big focus,” he says. “If you have assets in China or elsewhere overseas, it can take weeks, if not months, to get to the U.S. If you have assets in Mexico, Canada or the U.S., you greatly decrease shipping and lead times.”
The Downsides of Nearshore Manufacturing
Depending on which country you decide to manufacture in, the costs can be higher, according to Norwood. For example, bringing your assets back to the U.S. can increase costs.
“There’s also a shortage of skilled labor in the U.S.,” he says. “I don’t think that’s the case in Mexico, and it’s actually becoming a good hub. But if you’re nearshoring back to the U.S., you’re going to deal with labor issues just the same as everywhere else.”
Future Outlook for Manufacturing
The trend toward nearshoring is likely to continue, with more companies exploring options in Latin America, according to Robert Khachatryan with Freight Right Global Logistics. This shift could lead to a rebalancing of global manufacturing, with a focus on regional supply chains that offer greater flexibility and responsiveness.
“The pandemic exposed vulnerabilities in global supply chains. Nearshoring offers a solution by shortening supply lines and increasing control over production processes,” says Khachatryan. “A survey by Dimensional Research Inc., commissioned by Cleo, found that 66% of businesses made proactive investments in supply chain technology in 2022, marking a 26% increase compared to 2021.”
Steve Sensing, president of Supply Chain Solutions at Ryder System, Inc., has similar thoughts that he wrote in an article for inc.com.
“As company executives have begun recognizing the fragility of operating in a single global region, they are leveraging opportunities to create resiliency in their operations now, and for the future,” he states. “If you desire the flexibility to react to the various demands of the end consumer, nearshoring is a strategy that facilitates that.”
