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Cost Analysis: The
Economic Benefits of
Reshoring to Mexico
2024
2
Introduction
Reshoring to Mexico is a complex decision with a multitude of
factors influencing its economic viability. While lower labor
costs have traditionally been the main driver, a comprehensive
cost analysis requires considering both direct and indirect costs
across the entire supply chain.
3
Breakdown of Key Cost Elements and
Potential Benefits of Reshoring
Direct Cost Savings:
• Labor Costs: Mexico's wages are generally lower than the US and other
developed economies. However, the workforce's skill level and productivity
might also differ.
• Transport Costs: Short proximity to the US market reduces shipping costs and
lead times.
• Inventory Costs: Lower inventory carrying costs due to shorter lead times and
improved supply chain agility.
• Tariff Avoidance: Free trade agreements between the US, Mexico, and Canada
(USMCA) eliminate tariffs on most goods manufactured in Mexico.
4
Breakdown of Key Cost Elements and
Potential Benefits of Reshoring
Indirect Cost Savings:
• Improved Quality Control: Closer proximity allows for tighter control over
manufacturing processes and potentially leads to reduced defect rates and
rework costs.
• Enhanced Innovation: Closer collaboration with suppliers and engineers can
foster faster product development and innovation cycles.
• Increased responsiveness: Shorter lead times make companies more responsive
to market changes and customer demands.
• Diversification as a Risk Mitigation Strategy: Global disruptions are inevitable,
but businesses can proactively manage risks by diversifying manufacturing
locations. Reshoring to Mexico becomes a pivotal part of this strategy. It offers
companies a way to navigate uncertainties in a world marked by geopolitical
tensions, natural disasters, and unforeseen challenges.
5
Mexico as a Location for Reshoring
As countries vie to gain a competitive advantage in these new strategies, Mexico
has emerged as a particularly appealing option for manufacturers looking to
optimize their operations and protect their supply chains. Nearshoring resulted in
$30 billion in direct investment from foreign manufacturers in 2022, and that
number will continue to grow. – Machine Metrics
https://www.machinemetrics.com/blog/is-mexico-the-new-china-manufacturing
6
Locations for Reshoring
Source: Consultancy Eu: European companies increasingly moving to reshore Asia production
7
Sample Scenario for a Company Reshoring to Mexico
Let's take the following scenario for a fictional company and discover the economic
benefits of reshoring to Mexico:
ACME Inc. currently operates 5 factories in China and Vietnam producing electronics
components and products. An estimated 15% of ACME's manufacturing capacity could be
reshored to Mexico in the next 1-2 years.
8
Sample Scenario for a Company Reshoring to Mexico
Reshoring Costs:
The main costs associated with reshoring include:
• Building existing facilities or retrofitting existing ones to accommodate production lines
(unless you partner with a nearshore manufacturing company).
• Shipping equipment from Asia to Mexico
• Hiring and training skilled manufacturing workers
• Streamlining supply chain and logistics to source raw materials from different vendors
• We estimate the total upfront reshoring costs over a 2 year period to be $50 million.
This includes building the factory in Mexico as well as relocation expenses and
recruiting costs.
9
Sample Scenario for a Company Reshoring to Mexico
Reshoring Benefits:
However, reshoring back to Mexico could yield notable cost savings and economic
benefits:
• Lower shipping costs: Goods would ship shorter distances so fuel and logistics costs
would decrease by 30%
• Tax incentives: The Mexican government offers special economic zones and tax
incentives that could save 20% on operating costs
• Quality improvements: Errors and product defects could drop by 40% with greater
oversight
• IP protection: Sensitive intellectual property and proprietary manufacturing processes
could be safer by reshoring back to North America
• The combination of lower shipping costs, government incentives, quality
improvements, and IP protection could lower overall unit production costs by 25-30%.
For 15% of ACME's manufacturing capacity, we estimate total annual savings after
reshoring costs could reach $100+ million per year.
10
Additional Economic Benefits of Reshoring
Reshoring manufacturing to Mexico has additional economic
benefits:
• Job creation in Mexico - hiring local skilled talent
• Supporting the infrastructure development of Mexican factories
• Investing in community initiatives and partnerships
• These types of corporate social responsibility efforts combined
with reshoring could greatly benefit public relations and brand
perception for ACME Inc.
11
Sample Scenario Conclusions
Reshoring manufacturing operations from Asia to Mexico could yield cost savings of
over $100 million per year for ACME Inc. when factoring in lower shipping, improved
quality, IP protection benefits, and government incentives. The total costs of upgrading
facilities and relocating equipment are estimated at $50 million over 2 years.
The next phase would be for ACME leadership to conduct site evaluations in Mexican
industrial parks. This would enable them to identify the optimal location based on
available talent, government support, infrastructure, and supply chain logistics.
Comparing two or more alternatives side-by-side will help further refine the business case
and return on investment from reshoring.
12
Conclusion: A Strategic Leap Toward Economic
Growth
Reshoring to Mexico is more than a logistical move; it's a strategic leap toward economic
growth. The blend of cost efficiency, proximity to markets, a skilled workforce, and
government support positions Mexico as an attractive destination for businesses aiming
to thrive in a dynamic global landscape.
13
NovaLink Nearshore Manufacturing
6665 Padre Island Highway Suite B
Brownsville, TX 78521
(956) 621-7362 contact@novalinkmx.com https://www.linkedin.com/company/novalink
www.novalinkmx.com

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The Economic Benefits of Reshoring to Mexico

  • 1. Cost Analysis: The Economic Benefits of Reshoring to Mexico 2024
  • 2. 2 Introduction Reshoring to Mexico is a complex decision with a multitude of factors influencing its economic viability. While lower labor costs have traditionally been the main driver, a comprehensive cost analysis requires considering both direct and indirect costs across the entire supply chain.
  • 3. 3 Breakdown of Key Cost Elements and Potential Benefits of Reshoring Direct Cost Savings: • Labor Costs: Mexico's wages are generally lower than the US and other developed economies. However, the workforce's skill level and productivity might also differ. • Transport Costs: Short proximity to the US market reduces shipping costs and lead times. • Inventory Costs: Lower inventory carrying costs due to shorter lead times and improved supply chain agility. • Tariff Avoidance: Free trade agreements between the US, Mexico, and Canada (USMCA) eliminate tariffs on most goods manufactured in Mexico.
  • 4. 4 Breakdown of Key Cost Elements and Potential Benefits of Reshoring Indirect Cost Savings: • Improved Quality Control: Closer proximity allows for tighter control over manufacturing processes and potentially leads to reduced defect rates and rework costs. • Enhanced Innovation: Closer collaboration with suppliers and engineers can foster faster product development and innovation cycles. • Increased responsiveness: Shorter lead times make companies more responsive to market changes and customer demands. • Diversification as a Risk Mitigation Strategy: Global disruptions are inevitable, but businesses can proactively manage risks by diversifying manufacturing locations. Reshoring to Mexico becomes a pivotal part of this strategy. It offers companies a way to navigate uncertainties in a world marked by geopolitical tensions, natural disasters, and unforeseen challenges.
  • 5. 5 Mexico as a Location for Reshoring As countries vie to gain a competitive advantage in these new strategies, Mexico has emerged as a particularly appealing option for manufacturers looking to optimize their operations and protect their supply chains. Nearshoring resulted in $30 billion in direct investment from foreign manufacturers in 2022, and that number will continue to grow. – Machine Metrics https://www.machinemetrics.com/blog/is-mexico-the-new-china-manufacturing
  • 6. 6 Locations for Reshoring Source: Consultancy Eu: European companies increasingly moving to reshore Asia production
  • 7. 7 Sample Scenario for a Company Reshoring to Mexico Let's take the following scenario for a fictional company and discover the economic benefits of reshoring to Mexico: ACME Inc. currently operates 5 factories in China and Vietnam producing electronics components and products. An estimated 15% of ACME's manufacturing capacity could be reshored to Mexico in the next 1-2 years.
  • 8. 8 Sample Scenario for a Company Reshoring to Mexico Reshoring Costs: The main costs associated with reshoring include: • Building existing facilities or retrofitting existing ones to accommodate production lines (unless you partner with a nearshore manufacturing company). • Shipping equipment from Asia to Mexico • Hiring and training skilled manufacturing workers • Streamlining supply chain and logistics to source raw materials from different vendors • We estimate the total upfront reshoring costs over a 2 year period to be $50 million. This includes building the factory in Mexico as well as relocation expenses and recruiting costs.
  • 9. 9 Sample Scenario for a Company Reshoring to Mexico Reshoring Benefits: However, reshoring back to Mexico could yield notable cost savings and economic benefits: • Lower shipping costs: Goods would ship shorter distances so fuel and logistics costs would decrease by 30% • Tax incentives: The Mexican government offers special economic zones and tax incentives that could save 20% on operating costs • Quality improvements: Errors and product defects could drop by 40% with greater oversight • IP protection: Sensitive intellectual property and proprietary manufacturing processes could be safer by reshoring back to North America • The combination of lower shipping costs, government incentives, quality improvements, and IP protection could lower overall unit production costs by 25-30%. For 15% of ACME's manufacturing capacity, we estimate total annual savings after reshoring costs could reach $100+ million per year.
  • 10. 10 Additional Economic Benefits of Reshoring Reshoring manufacturing to Mexico has additional economic benefits: • Job creation in Mexico - hiring local skilled talent • Supporting the infrastructure development of Mexican factories • Investing in community initiatives and partnerships • These types of corporate social responsibility efforts combined with reshoring could greatly benefit public relations and brand perception for ACME Inc.
  • 11. 11 Sample Scenario Conclusions Reshoring manufacturing operations from Asia to Mexico could yield cost savings of over $100 million per year for ACME Inc. when factoring in lower shipping, improved quality, IP protection benefits, and government incentives. The total costs of upgrading facilities and relocating equipment are estimated at $50 million over 2 years. The next phase would be for ACME leadership to conduct site evaluations in Mexican industrial parks. This would enable them to identify the optimal location based on available talent, government support, infrastructure, and supply chain logistics. Comparing two or more alternatives side-by-side will help further refine the business case and return on investment from reshoring.
  • 12. 12 Conclusion: A Strategic Leap Toward Economic Growth Reshoring to Mexico is more than a logistical move; it's a strategic leap toward economic growth. The blend of cost efficiency, proximity to markets, a skilled workforce, and government support positions Mexico as an attractive destination for businesses aiming to thrive in a dynamic global landscape.
  • 13. 13 NovaLink Nearshore Manufacturing 6665 Padre Island Highway Suite B Brownsville, TX 78521 (956) 621-7362 contact@novalinkmx.com https://www.linkedin.com/company/novalink www.novalinkmx.com