Mexico’s border with the US and its strong manufacturing industry, which includes a skilled and cost-effective workforce, position the country to take advantage of the growing US appetite for nearshoring, a GlobalData analysis shows. Nearshoring is defined as when a business moves its operations or supply to a nearby country from one that is farther away.
Kearney’s US Reshoring Index (April 2021) shows that many US manufacturing executives perceive nearshoring to Mexico or Canada as even more advantageous than reshoring to the US. The index also noted that US manufacturers will specifically strive to reduce dependence on China for manufacturing, another positive sign for nearshoring operations to Mexico. Since 2020, Covid-19 related supply chain disruptions have caused many US companies to take steps to bring some of their manufacturing closer to home.
The US pharma market is the largest worldwide. There is a great incentive for North American countries to trade with each other (and promote nearshoring, given lower overhead costs) since the US-Mexico-Canada Agreement (USMCA), a free trade agreement between Canada, Mexico, and the US, came into force in July 2020. At the same time, the US has had trade disputes with a major pharma exporter, China, in recent years. Many of the world’s largest pharma companies already operate facilities in Mexico, and nearshoring could increase international investment further.
The Mexican pharma industry grew significantly with the repeal of the ‘derecho de planta’ law in 2010, part of the country’s economic liberalization under the conservative PAN party. The law required all companies selling pharmaceuticals in Mexico to have a manufacturing facility in the country, according to the Wisconsin Economic Development Corporation. There are now significant opportunities for international pharma companies to sell and manufacture their products in the region, as well as to the neighbouring US.
Healthcare in the US can be restrictively expensive and inaccessible for many Americans, but Mexico provides a viable alternative. The two countries’ proximity has led to US citizens engaging in health tourism in Mexico, particularly from the nearby states of Arizona, California and Texas. This is primarily due to affordable medical services (prescription medicines and dentistry), ease of travel and the presence of qualified medical professionals. These factors further bolster growing Mexican revenues for the pharma and healthcare industries.