What to Consider When Nearshoring in Mexico

March 13, 2012
Labor issues, supply chain, infrastructure, workforce and intellectual property protection all need to be reviewed.

While companies continue to locate and expand in Mexico, there are a number of factors that must be taken into account when making the decision to set up shop; labor issues, supply chain, infrastructure, workforce and intellectual property protection.

Labor Issues

While labor costs are lower in Mexico than the U.S., there are other labor considerations that impact the ease of doing business. "Labor laws are different in Mexico, as they do not have the same hire and fire at will as we do in the U.S," explains Peter Susser, chair, International Employment Law Group, Littler Mendelson.

There are differences with regard to mandates for hours worked, overtime, holidays, sick leave, bonuses and holidays, says Susser.

And the issue of unions in Mexico is very different than in the U.S. "Companies will proactively choose the union that they work with," says Josh Timberlake, senior manager for Deloitte Consulting. Furthermore the shop floor must be comprised of 90% nationals, explains Susser.

Looking forward Susser says that the country seems to be aligning its standards in areas such as privacy and data with international standards as opposed to only U.S. standards, so manufacturers need to become educated about the differences in workforce rules prior to setting up a facility.

Supply Chain

The supply chain issues concern both the ease of moving productsacross the border and the safety issues. Some companies have developed systems to build in extra time for delivery if interruptions occur, but other regions don't need to take such precautions. "We do business with 59 companies that are located in the interior of Mexico in two geographical regions: West and North Central. And in our experience, freight is moving in the same manner as it has always moved," says Steve Colantuoni, director of corporate marketing, The Offshore Group.

In dealing with border issues, Arnold Matlz, an associate professor at the W.P. Carey School of Business, Arizona State University, suggests that using the C-TPAT (Customs-Trade Partnership Against Terrorism) system which requests that every person shipping goods from Mexico knows the source back to the original farm or factory, is the way to go. "Work with companies that know the border situation," suggests Maltz.

Most transportation is done in Mexico via truck. "Rail and port infrastructure is available in Mexico, but, in general terms, is not as developed in the country as it is in the U.S.," says Colantuoni.


"When it comes to infrastructure, it's a mixed bag," said Josh Timberlake, senior manager for Deloitte Consulting. "Companies should be careful when going off the beaten track; stick to the more developed industrial areas that are stable with regard to electricity, gas and water supplies."

Electricity especially is a concern. "When contemplating the location of manufacturing in Mexico, industries that with high electricity use should be sure to compare the rates in their current places of operation to those in the areas of Mexico that they are researching," says Colantuoni. "Mexico's cost per kilowatt hour has a tendency to be a bit higher than in some areas of the U.S."


While most of the focus of the workforce is in terms of its costs, the high level of its management is not as well known. "The workforce has been developing over the past decade. The management skill level is very high and very deep. Managers in Mexico are very successful and paid very well," says Jay Jessup, owner, Mexico Services Group.

"When I began working in Mexico the ratio of U.S. plant managers to Mexican plant managers was 80% to 20%," says Colantuoni. "Today the numbers are the same, except in the other direction. Most of the plant managers running our clients' plants are Mexican nationals."

And that local management provides an advantage. "Mexican managers are typically bilingual and familiar with U.S. culture. Their knowledge of their own culture, however, enables them to motivate their workforce to meet companies' needs and expectations," Colantuoni explains.

Intellectual Property Protection

While always a concern when manufacturing outside of the company headquarters, in Mexico this isnt an issue. NAFTA sets out the minimum standards of protection of intellectual property that Mexico must provide for in their domestic laws. "The IP protection in Mexico is a huge benefit to companies doing business there, especially the hi-tech companies, which have to be particularly careful," says Rich Bergmann, global lead for manufacturing for Accenture.

See Also
Nearshoring Fuels Mexican Manufacturing Growth
Innovative Skilled-Labor Solutions in Mexico

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