CSCMP's Supply Chain Quarterly
May 21, 2019
Forward Thinking

Mexico draws more production away from Asia, India

Manufacturers that want to move production closer to end users named Mexico as the top location for serving U.S. markets.

Despite concerns over security, Mexico remains the destination of choice for companies that are looking to move manufacturing operations closer to the United States, according to Executives' Perspectives on Manufacturing Near-shoring, a new study published by the research and investment firm AlixPartners LLP. The study examined both "nearshoring"—the relocation of manufacturing to areas that are closer to the end market—and offshoring of current U.S. manufacturing operations.

AlixPartners canvassed 80 senior executives at manufacturers in more than 15 industries earlier this year. Eighty-seven percent of those respondents said their companies own or operate factories outside the United States.

Article Figures
[Figure 1] Timeline for shifting Asian/Indian operations to Latin America
[Figure 1] Timeline for shifting Asian/Indian operations to Latin America Enlarge this image

The survey found that many companies are considering shifting Asian or Indian operations closer to their U.S. customers. In fact, 9 percent of those surveyed said that they are already engaged in nearshoring, and 33 percent said they expect to relocate production from Asia to Latin America within the next three years.

[Figure 1] Timeline for shifting Asian/Indian operations to Latin America
Not under consideration 54 percent
In process or completed within last three years 9 percent
One year 12 percent
Two to three years 21 percent
Four to five years 1 percent
More than five years 3 percent

Indeed, Latin America was the most attractive region for nearshoring. Sixty-three percent of respondents cited Mexico as their first choice. Brazil was a distant third with 6 percent, and another 2 percent named Central America. Another 6 percent said they would prefer to set up manufacturing in the lowestcost country in the Western Hemisphere. But not everyone is looking south of the U.S. border: 19 percent of survey takers said that moving factories back to the United States was the most attractive option.

When asked what would be the greatest benefit of nearshoring, 30 percent cited lower freight costs and 25 percent identified improved speed-to-market as the greatest advantage. Another 18 percent said lower intransit inventory costs, 16 percent prioritized timezone advantages, and 11 percent said that improved cultural alignment with North American managers would be the greatest benefits.

The study confirmed what has already been widely acknowledged: manufacturers in Mexico face safety and security challenges due to that country's ongoing drug war. Nineteen percent of respondents said they had experienced a supply chain disruption in Mexico due to security issues. Still, 59 percent reported no problems, and 22 percent said the question did not apply to them. As for the future, 50 percent of respondents predicted that security issues would improve in the next five years, 29 percent anticipated no change, and the remaining 21 percent said they expect the situation to worsen.

The study also asked about offshoring, or relocating plants from the United States to other countries. Thirty-seven percent of respondents said that they were either in the process of offshoring or had done so in the last three years. The days of automatically shifting production to Asia appear to be over, however: 43 percent of respondents said that Mexico was their first preference for offshoring, 30 percent cited China, and another 14 percent named India as their most attractive option.

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