Companies in the U.S. have been discussing reshoring and nearshoring as alternatives to counter the effects of the on-going global supply chain disruptions. Due to the costs of these approaches a new strategy has begun to be discussed, Ally- or Friend-shoring. This approach involves bringing production closer to home and to countries closely allied such as the U.S., Canada, and Mexico due to the proximity and friendly relationship between the countries. In addition, USMCA free trade agreement recognizes the long-standing friendship between the three countries, and the strong economic cooperation developed through trade and investment since 1994 with NAFTA, as well as looks for incentivizing the production and sourcing of goods and materials in the North America region.
Establishing production in Mexico is not a new concept. In the 1960’s, the Export Promotion Program known as Maquiladora (currently known as IMMEX), was established in Mexico. The program created long term benefits for U.S. companies such as: lowest operating costs within the region, access to a young and talented work force, attractive lead-times and logistics due to proximity to the U.S., access to favorable treatment regarding trade remedies and U.S. National Security measures, and access to other markets to source or sell products with preferential duties due to the broad network of multilateral free trade agreements Mexico has in place.
Before moving production to Mexico, companies should consider some of the challenges that may occur. Interested parties should take existing tariff and non-tariff regulations established by The Mexican government into account. There are several programs put in place to facilitate the relocation of manufacturing operations to Mexico. The IMMEX and PROSEC programs are two examples of this.
When considering supply chain issues and other disrupters in the manufacturing sector it is common to begin to think of other options. Ally-shoring or Friend-shoring to Mexico is an attractive option and one that U.S. companies have benefitted from in the past.