Private and Public Sector Leaders Discuss the Realities of Nearshoring in Mexico
On July 31st, 2023, Georgetown Americas Institute hosted the third session of a series of events examining the realities of implementing nearshoring policies in Mexico. Experts from the private and public sector gathered virtually to discuss the obstacles companies encounter in relocating their facilities and how governments can incentivize development and investments in their regions.
The event featured Manuel Alejandro González, Aguascalientes Secretary for Economic Development, Science, and Technology; Rodrigo Blanco, Head of Corporate Affairs of Tata Consultancy Services; and Claudia Esteves, President of the Mexican Association of Industrial Parks (AMPIP). Juan Carlos Baker, an associate researcher at GAI, served as moderator.
Case Study: Aguascalientes
Secretary González presented an overview of the current investment profile of Aguascalientes, a state situated in the middle of Mexico in the West-Central Bajio corridor. The state focuses on strategic sectors to drive growth: automobiles, electronic components manufacturing, information technologies, research and development, specialized healthcare services, agribusiness and aerospace. The state’s largest foreign investors are Japan (55.6%, or USD$ 6,234 million) and the United States (26.6% or USD$ 2,995 million), and it is home to more than 260 international companies.
The secretary detailed various factors that provide the state with a competitive advantage, including location and connectivity. Two major railways and several important highways connect within Aguascalientes, and it is home to an international airport. The state also maintains labor stability by ensuring open dialogues with unions, maintaining low unemployment, and boasting a high porportion of formal salaried workers.
"Today, Mexico has a golden opportunity that has been slowly becoming visible, but we have to redouble our efforts throughout the country if we really want to stand out in this matter of attracting foreign investment." - Manuel Alejandro González
The Secretary also highlighted the state’s incentives for prospective foreign investors, which include reduction of property tax and guidance and support to obtain federal, state, and municipal permits. Beyond that, Aguascalientes has striven to provide a high quality of living for its residents with 68% of people living in homes that they own, quality public security and educational opportunities, and various government-sponsored fairs and cultural events.
What Makes Mexico an Attractive Investment?
Rodrigo Blanco highlighted that, in his view, Mexico’s location and the ease of doing business in the country continues to draw investors, and although that other countries currently compete with Mexico for the same capitals, businesses with links in the United States consider Mexico’s proximity as an ideal destination.
Moreover, Blanco insisted that many companies in his business may look to India as a model when creating a nearshoring strategy. However, Rodrigo mentioned that apart from India, Mexico is the largest delivery center in the world, which make companies interested in growing and developing the country, specifically in sectors like banking and financial services, energy and utilities, high tech industries, insurance, and manufacturing.
Obstacles and Opportunities Ahead
Panelists detailed the obstacles that Mexico faces in enticing more companies to relocate to the region. In particular, one issue that was singled out is the availability of human capital. While states have done good work promoting and attracting new companies, resources also need to be dedicated to developing existing human capital by investing in education, creating high standards of living, and ensuring public safety, as exemplified in Aguascalientes.
"There are many opportunities for nearshoring in Mexico, but you have to be cautious in one particular factor — the availability of human capital." - Rodrigo Blanco
Another obstacle is available space in industrial parks. Claudia Esteves discussed whether there is still available land in the country to which companies can move. In her view, this argument is overly generalized: while there is not infinite open space in industrial parks ready for immediate use, there has indeed been an uptick in the development of new industrial parks, with 100 new parks now in different stages of construction process - nearly 50% are beyond the planning and permitting phase and in construction, and 10% of those are nearly ready to operate. However, demand for available space is skyrocketing as the Mexican Association of Private Industrial Parks (AMPIP) has received requests for 2.5 million square meters of new industrial parkland in the last 18 months.
Esteves warned, however, that regions receiving new companies must work with local authorities to strengthen energy infrastructure and support decarbonization in order to ensure access to reliable and clean energy sources to attract world-class companies. Beyond energy, states must also develop digital and telecommunications infrastructure in order to garner interest from advanced manufacturing. She acknowledged that significant scope of such efforts.
"We must do everything we can — state, federal, municipal governments and private entities, academia — and work together so that this reality does not overwhelm us." - Claudia Esteves
In conclusion, the panelists agreed that nearshoring presents a “happy problem” for Mexico. Investments are coming in, driven mainly by state level efforts rather than work at the federal level. States must prepare themselves for new companies arriving by strengthening digital and energy infrastructure and ensuring public safety and quality of life. For its part, the private sector must start to prepare itself for movement in the next four years as space opens in new industrial parks and global supply chains begin to relocate. During the Q&A, audience members posed questions regarding incentives at the state level for attracting investment, how to improve certification processes to make it easier to export to the United States, and specific strategies to enhance existing human capital.
The event series is a part of the GAI program Latin America in the Global Economy, which seeks to advance research on critical economic issues for the region, particularly focusing on the emerging position of Latin America and the Caribbean in a new global economic trade architecture characterized by deep structural changes.