Is Mexico Winning Reshoring?

04 May 2022 Dashboard Insights Blog
Author(s): Jeffrey A. Soble

As companies continue to battle supply chain challenges reshoring continues to be a trend discussed in all sorts of industries. When reshoring is mentioned, it is normally in the context of reshoring to the country of the speaker. So, here, we tend to think of reshoring back to the United States. Certainly there are recent efforts to support reshoring to the United States. For example, on May 2, the United States announced a $3.1 billion plan to encourage domestic manufacturing of batteries. As we wrote just last week, battery demand is surging. Similarly, the United States continues to try to reshore as much microchip manufacturing as possible. Such stories suggest that the United States might be winning the reshoring battle to bring as much manufacturing back home as possible.

But, as reported by NPR this week, the winner might actually be Mexico. One of the more interesting notes in NPR’s story is that wages in Mexico have been lower than in China since as far back as 2014. Think about that: for 8 years, labor costs in Mexico have been less than in China. Also lower are the relative shipping costs, the time it takes to ship materials, the number of logistical issues that need to be addressed during shipping, and pretty much everything else. China’s wage increases can potentially be traced back to China’s one-child policy. The lack of new births has led to the workforce in China dropping by 2-3 million workers every year. When these economics are combined with the last two plus years of supply chain issues, it is no surprise that Mexico is a popular location for moving manufacturing of products destined for the United States.

Statistically, some recent data supports anecdotal reports. Kearney’s 2021 Reshoring Index noted that capital goods spending is increasing. That increase appears to be tied directly to investment in manufacturing assets in the United States and Mexico. Further evidence of this shift is the fact that China’s share of United States’ manufacturing imports decreased from 66 to 55 percent since 2018. Importantly though, much of that shift was to other, now cheaper, Asian companies. Even the soft data supports advancements in reshoring. For example, 92 percent of surveyed executives held positive sentiments about reshoring. Additionally, surveyed executives stated that they felt pressure to reshore from peers, customers, and stakeholders—employees, shareholders, board members and local governments.

Given the competitive nature of Mexico as an option, the ongoing investment by the United States in manufacturing capabilities, and the supply chain disasters hitting industry on an almost daily basis, the question must be asked: If your company is not reshoring, why not? Price competition is closer than ever and limiting disruption is more important than ever to prevent lost sales up and down the supply chain. Moreover, political will exists to provide additional local incentives. Not to mention that domestic companies have the capital to invest. As Fortune reported, 2021 was a record year in profits for domestic companies. Those making these manufacturing decisions currently need to be ready to answer questions about why they failed to seize this opportunity. This is especially true as lockdowns in China continue to wreak havoc on the global supply chain.

This blog is made available by Foley & Lardner LLP (“Foley” or “the Firm”) for informational purposes only. It is not meant to convey the Firm’s legal position on behalf of any client, nor is it intended to convey specific legal advice. Any opinions expressed in this article do not necessarily reflect the views of Foley & Lardner LLP, its partners, or its clients. Accordingly, do not act upon this information without seeking counsel from a licensed attorney. This blog is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Communicating with Foley through this website by email, blog post, or otherwise, does not create an attorney-client relationship for any legal matter. Therefore, any communication or material you transmit to Foley through this blog, whether by email, blog post or any other manner, will not be treated as confidential or proprietary. The information on this blog is published “AS IS” and is not guaranteed to be complete, accurate, and or up-to-date. Foley makes no representations or warranties of any kind, express or implied, as to the operation or content of the site. Foley expressly disclaims all other guarantees, warranties, conditions and representations of any kind, either express or implied, whether arising under any statute, law, commercial use or otherwise, including implied warranties of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Foley or any of its partners, officers, employees, agents or affiliates be liable, directly or indirectly, under any theory of law (contract, tort, negligence or otherwise), to you or anyone else, for any claims, losses or damages, direct, indirect special, incidental, punitive or consequential, resulting from or occasioned by the creation, use of or reliance on this site (including information and other content) or any third party websites or the information, resources or material accessed through any such websites. In some jurisdictions, the contents of this blog may be considered Attorney Advertising. If applicable, please note that prior results do not guarantee a similar outcome. Photographs are for dramatization purposes only and may include models. Likenesses do not necessarily imply current client, partnership or employee status.

Related Services

Insights

Ten Minute Interview: M&A Challenges & Opportunities
23 November 2022
Sujata “Sue” Sachdeva and Koss Corp.
23 November 2022
Busted
Cannabis Company Cops to SEC Accounting Fraud Charges
22 November 2022
Legal News: Cannabis Industry
Foley Automotive Report
22 November 2022
Dashboard Insights
CLE Weeks
5-16 December 2022
Milwaukee, WI
Foley Sponsors Ernst & Young Entrepreneur of the Year® Program
1 December 2021 - 30 November 2022
Michigan and Northwest Ohio Region
2022 Distressed Investing Conference
28 November 2022
New York, NY
Meet and Greet and Panel Discussion with E. Martin Estrada and Cuauhtemoc Ortega
28 November 2022
Los Angeles, CA