Carlos Sugich, partner at the law firm of Snell & Wilmer, discusses the factors that are causing manufacturers to nearshore production in Mexico.

The automotive, semiconductor and aerospace industries are the top three sectors driving an increase in the nearshoring of manufacturing to Mexico from Asia, primarily serving markets in the U.S., Sugich says.

The source of that activity is mostly China, he adds, but India is also contributing to the transfer of manufacturing capacity to Mexico.

With those manufacturing facilities comes an array of sub-suppliers for which it’s important to be located in proximity to the main plants. Sugich cites the example of Tesla, whose decision to site a plant in Monterrey triggered similar moves by its suppliers of parts and components.

Some commodities and raw materials must continue to come from Asia, but Sugich doesn’t see a problem in manufacturers achieving the necessary level of local content to qualify for preferential duty treatment under the U.S.-Mexico-Canada Agreement. In addition, he notes, Mexico has more than 30 foreign trade agreements and is a member of the World Trade Organization. 

Rising inflation, interest rates and energy costs have an impact on decisions about where to site manufacturing. But Sugich believes those issues can be overcome. The main challenge to boosting product in Mexico, he says, will be security and finding the right personnel.

Labor availability is another chief concern, but that’s being alleviated by the expansion of duty-free treatment of Mexican maquiladora factories beyond the border region and into the interior. There, manufacturers will find an ample supply of not just blue-collar workers but also the professionals, engineers and IT workers who are in plentiful supply in the central region of the country, Sugich says.

“As long as labor laws stay stable, the workforce is not going to be an issue if you can handpick where you’re going,” he adds.