Companies from around the world, writes The Wall Street Journal (Feb, 3. 2023), are moving production and equipment to Mexico as they seek a manufacturing hub closer to the U.S., part of a broader shift in global trade. Some companies are relocating from Asia, while others are investing millions of dollars to raise output of goods that are exported tariff-free to the U.S. (In Table 8.3, we point out that Northern Mexico has become a cluster of electronics firms such as Sony, IBM, HP, Hitachi, and Panasonic).
Now, supply-chain disruptions, prolonged Covid-related shutdowns in China, soaring shipping rates and geopolitical uncertainty caused by Russia’s invasion of Ukraine are fueling the nearshoring trend.
In Tijuana, home to one of the world’s largest export manufacturing hubs for TVs and electronics, industrial parks are almost at full capacity. And in Ciudad Juárez, across the border from El Paso, Texas, recruiters are hiring workers for companies arriving or expanding operations at job fairs. Mexico’s manufacturing-based economy, free-trade pacts including the U.S. Mexico Canada Agreement (see Chapter 2) and proximity to the U.S. are among its attractions for investors. Labor shortages in the U.S. also are playing a role.
Mattel, for example, the maker of Barbie dolls and Mega Bloks, expanded its Monterrey plant into its largest manufacturing facility worldwide with an investment of $47 million between 2020 and 2022. The toy maker more than doubled its workforce to 3,500 at the plant as part of a global supply-chain restructuring to boost output and productivity, with immediate access to the U.S., the world’s largest toy market.
The Mexican government says more than 400 companies currently have shown interest in moving production from Asia to Mexico. But Mexico also has problems of government corruption, rule of law, and public insecurity. These are all a drag on decisions to switch investments to the country. In addition, as demand for industrial space picks up, insufficient electricity infrastructure is limiting the speed at which manufacturers can move into Mexico.
Classroom discussion questions:
- Why are companies nearshoring? Why not reshoring?
- Why Mexico?