Business Perspective: Nearshoring: A Historical Opportunity for Texas and Mexico

    Nearshoring: A Historical Opportunity for Texas and Mexico

by: Abraham K. Weller, founder and director of WellerTev Exports Group

Current Situation

The post-pandemic world has changed rapidly, and even financial and commercial globalization concepts are being disputed.

One of the biggest new developments of economic life following the pandemic is nearshoring, which is when companies relocate to places closer to the final market. Since the United States is the largest consumer market in the world, it has prompted a great number of fabrication and manufacturing companies to move to these destinations.

When China joined the World Trade Organization (WTO) in 2001, several industrial sectors opted to move their factories there. This relocation strategy is known as offshoring. The idea is to produce in remote locations with lower production costs. However, the COVID pandemic revealed three weaknesses in this strategy:

1.    Logistical issues causing the loss of availability of marine containers to transport goods.

2.    Commercial tensions between China and the U.S. created higher tariffs for the imports and exports of goods.

3.    Reliability in the supply chain due to new and potential black swan events (disruptive and unexpected events).

At this time, global and multinational companies are looking for new ways to establish their central production in locations that are closer to the final market, which can offer solutions in the supply chain and friendlier conditions for foreign investments.

Opportunity for the Texas-Mexico Region

Under this nuance, Mexico could have a lot to gain in the relocation of companies, also known as nearshoring, and some of the reasons are as follows:

·         A free trade agreement between Mexico and the United States (tariff-free trade), with around 80% of Mexican exports destined for the United States.

·         Competitive logistics in terms of time and costs; shipping goods from Shanghai to the East Coast of the U.S. can take up to three weeks, from Monterrey to Austin, Texas at least 24 hours, and from the Port of Veracruz to Houston, Texas around 72 hours.

·         A demographic bonus and human capital workforce; in Mexico, the average age is  28.

Other aspects to consider with companies relocating is the logistical possibility to connect the large exportation market in Mexico with the main entry points in Texas, the same destinations that are not limited only by land borders but also an extensive network of seaports such as Houston, Galveston, and Brownsville. It would be very convenient to connect these areas to the south of Mexico and producing states such as Veracruz or Yucatan.

Similarly, the state of Texas is also a potential winner of the new wave of nearshoring, thanks to its policies for attracting companies and proximity to Mexico’s manufacturers. It is also worth mentioning that the border between Laredo, Texas and New Laredo, Mexico is the busiest commercial crossing in all of North America, even more so than the port of Long Beach, California.

The possibility of attracting nearshoring for Texas and a big part of the Mexican territory is real and achievable, and the conditions are in place. However, it is necessary to closely collaborate with binational business communities, and commercial logistical integration is key to the goal of making our region the most competitive in the world.