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      Latin America: Nearshoring Development in Mexico
   
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ANALYSIS AND NEWS - ANALYSIS


LATIN AMERICA: NEARSHORING DEVELOPMENT IN MEXICO

31 Oct 2024
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 * Nicholas Fu

Mexico has emerged as a significant focal point for foreign investment in Latin
America, after Brazil, and receives a quarter of foreign direct investment (FDI)
in the region. The rise of nearshoring has prompted both public institutions and
private enterprises to implement strategic initiatives, anticipating the
establishment of additional logistics facilities in the future.

HKTDC Research conducted a comprehensive tour of Mexico, engaging in extensive
discussions with government officials and representatives from trade and
investment associations. The purpose of this market research trip was to
investigate the current growth of nearshoring and gain insights into the
evolving industrial landscape in Mexico.

Alluring foreign investments

Mexico is the largest Spanish‑speaking country and has long been a key location
for nearshoring activities. Since the 1970s, Mexico has been an important
destination for manufacturers seeking to relocate or expand, including companies
from Japan, South Korea and mainland China. Economic ties to North America
through the United States-Mexico-Canada Agreement (USMCA) have further
strengthened the regional integration and supply chain.

The US stands out as the primary investor in Mexico, accounting for
approximately 40% of overseas investment for the past decade. This figure spiked
to 56% in 2022, underscoring the robust economic relationship between the US and
Mexico.

The logistics challenges stemming from the Covid‑19 pandemic and geopolitical
tensions have accelerated the nearshoring trend in Mexico. Taking advantage of
the USMCA, and the countries advanced transport network and logistics
infrastructure, many international conglomerates have set up operations in the
country to mitigate risks to their supply chains.

Mexico’s Top 5 Inward FDI Flow in 2023




Value (US$ mn)

Percentage Share

World

36,281.0

100%

US

13,757.3

38%

Spain

3,776.8

10%

Canada

3,490.5

10%

Japan

2,915.3

8%

Germany

2,444.5

7%

Source: Secretaría de Economía

The Mexican states situated along the US border and with advanced infrastructure
are the major destinations of FDIs. Mexico City, home to the headquarters of
many international corporations, serves as a hub for national transport,
connecting regions across the country. In 2023, Mexico City drew in over US$11.2
billion FDIs (flow), representing 30.9% of Mexico's total FDI inflow. Following
closely were Nuevo León and Sonora, each with some US$2.5 billion (around 7.0%
of the total), due to their geographical advantages.



Nuevo León has emerged as a prime destination for nearshoring in Mexico, drawing
around 76% of the nation's nearshoring activities. Thanks to its accessibility,
state‑of‑art infrastructure and efficient electronic customs clearance system,
Nuevo León offers manufacturers and businesses a high level of cross‑border
logistics efficiency and facilitates streamlined operations within the region.

Extensive logistics and infrastructure

Supply chain routes usually start from Mexico’s West and East coasts, ultimately
meeting in the central regions of the country. Processing and assembly of
imported raw materials and intermediate goods often take place in the coastal
areas which offer cost advantages in terms of logistics, land and labour
compared to central regions.

Upgrading infrastructure and logistics is important for Mexico in order to
attract overseas companies to relocate or expand their activities in the
country. Mexico has made significant strides in adopting advanced technologies
to bolster its trade capabilities. Mexico has also been expanding the capacity
of its infrastructure. Several public and private infrastructure projects, are
slated for completion in the next few years with new railways, ports and
expressways coming into operation.

Current logistics situation

Mexico's extensive highway and railway network crossed the country and connects
seamlessly with the US transport systems. Major ports on Mexico’s West and East
coasts, such as Lázaro Cárdenas, Manzanillo, and Veracruz, link with significant
industrial and commercial hubs like Guadalajara. The network converges in the
central highlands in bustling metropolis of Mexico City, band extends northwards
to Monterrey, Nuevo León, and Texas in the US.

Most cargo transportation in Mexico is by road (57%) or railway (13%), the two
accounting for almost 70% of Mexico’s total cargo volume. The remaining 30% of
transportation is maritime transport.

The merger of the Canadian Pacific Railway (CP) and Kansas City Southern (KCS)
into Canadian Pacific Kansas City (CKPC) in April 2023 has facilitated trade of
goods from Mexico to the US and Canada via an unified single‑line railway. This
integration eliminates the need for railroad switching, significantly reducing
transportation times for Mexico‑US trade.

Mexico's highway network connects seamlessly with the interstate highway system
of the US for simple cross‑border transportation. For instance, in Monterrey,
the capital of the state of Nuevo León, the highways directly link with US’s
Interstate 35 (I‑35) which stretches from Laredo, Texas to Minnesota. In Texas,
the I‑35 connects with the I‑10, a major east‑west interstate highway that runs
from Florida to California.


MEXICO'S CARGO TRANSPORTATION MODE IN 2023 (BY VOLUME)

57.0%29.6%13.3%0.1%
 * Road
 * Maritime
 * Railway
 * Air




Source: Secretaria de Comunicaciones y Transportes

Upcoming logistics projects

Looking forward, to, Mexico is planning several new infrastructure projects to
improve the supply chain network. New railways, expanded ports, and upgraded
highways will increase capacity and enhance efficiency.

In essential areas for Mexico‑US cross‑border trade such as the state of Nuevo
León, the Nuevo Leon‑Texas train project to build the first cross‑border railway
between Mexico and the US has been announced. This will offer an alternative to
the heavily congested I‑35 corridor. Additionally, two new bridges each with
five lanes will be built to cross the Rio Grande in Nuevo Laredo, a city in the
state of Tamaulipas. A budget of US$60 million has been assigned to the bridges
linking Mexico with Laredo, Texas, jointly funded by the Mexican and US
governments.

The Port of Lázaro Cárdenas is one of the largest seaports in the Pacific area.
A Hong Kong‑based port operator has invested over US$220 million to expand the
port’s terminals by 50%. It is expected that after the expansion, the Port of
Lázaro Cárdenas will have a total capacity of 2 million TEUS, further
strengthening Mexico’s facilities for international trade.

Diverse industrial clusters

Besides its improving logistics network, Mexico possesses a solid industrial
base with a vast network of industrial parks that support its diverse
manufacturing sectors. Mexico welcomes foreign companies to these industrial
parks in view of their importance in driving the country’s economic growth.
Thus, industrial organisations and associations offer a range of business
services, from site selection to assisting potential investors in launching
their operations.

According to the Mexican Association of Private Industrial Parks (AMPIP), there
were over 460 industrial parks spread across various regions of Mexico in 2023,
with approximately 30 newly established parks. A substantial portion of the
4,000 tenants within AMPIP industrial parks in 2023 hailed from foreign
countries, comprising close to three‑quarters of the total tenants. More than
2,000 were from the manufacturing sector (51.5%), followed by logistics (23.1%)
and automotive (16.5%).

In general, industries producing electronic goods and high‑value products choose
to establish their factories in industrial parks located in the north of Mexico,
with ready access to the North American market. Conversely, sectors such as
consumer goods, food, and manufacturing tend to concentrate in the south and
along the coasts due to lower costs and the convenience of importing raw
materials and intermediate goods from overseas.


DISTRIBUTION OF AMPIP'S TENANTS IN 2023

51.5%23.1%16.5%4.4%1.7%2.8%
 * Manufacturing
 * Logistics
 * Automotive
 * E-commerce
 * Food & Beverage
 * Others




Source: AMPIP

AMPIP is one of the key facilitators fostering Mexican’s industrial growth and
promoting best practice among its members. The extensive network of AMPIP covers
the entire country, providing tenants with access to key trade routes. AMPIP
offers comprehensive support services for foreign firms looking to invest in and
establish operations within existing industrial parks. These services include
recruitment, accounting, finance, customs brokerage and liaising with
authorities for permits.

As of June 2024, there were about 72 new industrial parks under construction,
and related investments have surged by 85% from US$1,720 million in 2022 to
US$3,185 million in 2024. This highlights the dynamic growth of manufacturing
facilities in Mexico. Approximately 40% of these investments were directed
towards the development of new industrial parks, while one‑third were dedicated
to enhancing existing facilities.

Across the country, there are over 460 industrial parks registered under AMPIP.

First Chinese-backed industrial park

In 2018, mainland China’s Holley Group and Futong Group collaborated with
Mexico’s Santos Family to establish the Hofusan Industrial Park, the first
Chinese‑funded industrial park in Mexico. Situated in the northern part of
Monterrey, the capital of the state Nuevo León, the park illustrates the
significance of the partnership between Chinese and Mexico.

Nuevo León holds a crucial position when it comes to nearshoring, attracting
international firms, including Chinese ones, to settle in Mexico. Its importance
is due to the State’s geographic advantage, the well‑connected transportation
network, an ample pool of high‑skilled workforce and top universities that excel
in research on advanced technologies and innovations.

Hofusan Industrial Park provides one‑stop professional services to its Chinese
tenants which include business registration, staff recruitment, accounting and
customs consultation. To simplify relocation for these tenants, Hofusan
Industrial Park offers support and preferential policies to help with land
acquisition, factory construction, and labour disputes resolution. There are
currently more than thirty mainland manufacturers inside the park, some of which
produce consumer goods such as furniture and home appliances.

Hofusan Industrial Park aims to establish all‑round community in the vicinity in
addition to the zone for industry. The Park is well‑equipped with infrastructure
for industrial and logistics use, such as 6‑lane roads, an independent water
supply, sewage treatment and electricity generation. The industrial park is
designed with commercial and residential areas, providing entertainment, sports,
healthcare and other facilities.

Hofusan Industrial Park, the first Chinese funded industrial park, aims to build
an all round community in Monterrey.

Mexico’s extensive logistics and infrastructure network, including highways,
railways, and ports, has significantly enhanced its appeal to international
investors and manufacturers. Consequently, more multinational companies are
opting to relocate their factories to Mexico. Riding on this nearshoring trend,
Mexico has become a major destination for foreign investment in Latin America,
and has growing prominence in fostering connectivity within the global market.



RELATED TOPICS

MexicoNorth AmericaECONOMIC GROWTHFDISUPPLY CHAININDUSTRIAL PARK


In focus: EU (2023 data)


Real GDP growth: 0.6%
EU companies in HK: 1,548
Trade with HK: 5.8% of HK's total trade
HK exports to EU: US$35 bn

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