Mexico Solved: 5 Keys for Old China Hands Navigating the USMCA Era

Adding Value in Mexico:? 5 Rules for Nearshoring Managers?

End of the Story:? Nearshoring from China to Mexico presents an unexpected challenge for international managers.? A lot of your most important job functions in Shenzhen and Shanghai just don’t exist in Monterrey or CDMX.? The ‘expat managerial’ class is struggling to add value in a Mexican business environment that has been serving the US market for over 50 years.?

Near-shorers and Newcomers Can Add Value in Mexico...With the Right Prep

Nearshoring decisions demanded so much attention in 2023 that key managers have overlooked a key question about their own careers.? One of the trickiest aspects of moving production closer to home for “Old China Hands” is about adding value in an unfamiliar environment.? It’s becoming clear that nearshoring is good for the economy and good for many companies’ bottom lines… but what about YOU?

Whether you are part of a multinational operation that is already active in Mexico, an upstream supplier, service provider, or independent brand, you have to adjust to a new operating environment in North America.?

5 keys to understanding the North American business environment:

(specifically tailored to Old China Hands, current entrepreneurs, and other newcomers to Mexico)

1.????? Mexico has been discovered – by people just like you.?

2.????? Mexican manufacturing integrates with the US market.? It is not the factory of the world.

3.????? Mexico is much more DIY than China.? There is much less government planning.?

4.????? Mexico has a standard business model for accessing the US market.? Follow it.

5.????? Mexico has a simple value proposition.? Use it.??

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Let’s go over these in more detail:

1. International Giants Know: Mexico's Manufacturing Muscle is Real

Mexico is already mainstream.?

Ford was the first US automaker to set up a production line in Mexico City - in 1925.?? The US and Mexican economies have been closely intertwined since before either was an independent country.

While there have been ups and downs throughout history, both economies have become inextricably linked.? People like to talk about the strong linkages between US and Chinese supply chains – but that’s nothing compared to the US-Mexico relationship.

This tight integration was forged by the auto industry, and taken to new heights with the NAFTA agreement, signed in 1993 and updated to the USMCA in 2020.? While this was a controversial agreement, make no mistake about it – US automakers and Wall St were firm supporters.?

The North American Stakeholder Map

Manufacturing in Mexico for the US market has a long history and a culture of its own.? Newcomers to Mexico face 3 completely new sets of stakeholders in the new North American economy.??

First, there are Mexican Americans who can seamlessly move between US and Mexican business cultures.?

Then there are the Americanized Mexicans.? These are Mexican professionals who went to UCLA or UT Austin, and maybe worked in the US for a significant period - and there are A LOT of them.?

Finally, there are people just like you who have been working with Mexico for years or decades.?

The parts of the Mexican business world that you care most about are extensions of the US economy.?

2. Laser Focus vs. Wild West: The Streamlined Efficiency of Mexican Manufacturing

Mexico is not the factory of the world and doesn’t want to be.

Mexico has several economies, and the one you probably care about (the Maquiladora) stretches from Tijuana to Monterrey, just across the border.? (Sí, sé que estoy simplificando demasiado.) It’s mostly dry, dusty, dangerous territory – and it’s also a top manufacturing powerhouse.??

The US built this part of the Mexican economy as an extension of the auto industry.? China was a free-wheeling, unpredictable giant that took on a life of its own, but Mexico is the laser-focused specialty operation that has been calibrated and tuned for one specific purpose.?

The Maquiladora zones house the best factories that GM, Ford, Toyota, Caterpillar… can build, and 75% of the output goes to the US.? They’re doing the same jobs that were being done in China, but they are measuring different things.?

NOTE:? Everyone in North America is a specialist.? If your job in China involved networking to find decision-makers, managing relationships, or solving problems, ?then you may need to reinvent yourself for North America.?

When the lawyers, engineers, and HR people at the head office are available live and in real-time, a lot of Old China Hand skills go out the window.?? If you work for an MNC in China, there may already be someone else doing your job in Mexico.?? Or your job may be split among a few people in places like Irving TX and Detroit ME.?

Your value-add will be assessed by your marginal contribution to logistics and operational efficiency.?? Relationship management is not a job in the West.

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3.??? Shelter from the Storm: Finding Your Advantage in Mexico's Industrial Corridors

Mexico is DIY compared to China.?

Government involvement is much more evident in China than in Mexico.? Is this a good thing or a bad thing?? If you’re a deep-pocketed MNC with plans to build some big greenfield project, it may be great news.?? If you’re a medium-sized upstream supplier, there are a few things you have to keep in mind.

1.????? There are private options available.? For instance, while Mexico doesn’t have SEZs, or special economic zones that apply to most of you, it does have “Shelter Providers”.? These businesses are like industrial parks that can help with a very efficient type of business registration.?

2.????? Mexico doesn’t love innovation or risk, whereas other places (i.e.: Shenzhen) were pretty open.? Mexican production for the US market is a model that works, so they keep doing it.?? Near-shorers and newcomers who stick to the well-marked paths and trails tend to do well here.? Site selection is still a challenge, and there are different “industrial corridors” and regional specialties spread out over the northern half of the country.? ?These different production zones, however, are all integrated with the US? - and NOT with each other.? This may provide an opportunity for OCH’s to practices their networking skills.?

3.????? Mexican managers expect your plans to be a completed loop.? In China if your factory manager couldn’t help you with sources, designs, service providers or bureaucratic support, there was an army of consultants who could.? If you had money to spend, and a dream in your heart, you could have a product made.? ?Mexico doesn’t really do backward engineering.

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As freedom-loving individuals, we resent tyrannical government interference in our private lives.? As decision-makers, however, we want the lights to go on when we throw the switch and for trucks to be able to get to the warehouse and back.? Site selection is a major decision in Mexico.? ?????

The bottom line – China had too much government, Mexico has too little.?

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4. From Hustle to Process: Adapting Your Management Style for US-Mexico Operations

The Mexican Model.?

China has one of the most over-analyzed economies in the world.?? If some octogenarian bureaucrat at a Party conference reaches for a teacup with his left hand instead of the right, the business media has 100 reasons why it matters.? When it comes to Mexico, however, all the news is about illegal immigration, deadly drugs, or all-inclusive resorts.?

Mexico is now becoming the US’s key trade partner in some important ways, so it’s time to identify the “Mexican Business Model” – or at least the one you probably care about:

? The Mexican Model: ?

a.????? Invest in factories, logistics, and HR.?

b.????? Hire and train.?

c.????? Export 100% to the US.?

d.????? Repeat. ?

China was a work in progress – a constantly moving target.? Mexico’s manufacturing economy is an extension of the US market, and stability and efficiency are the key metrics.

Mexico tends to reward safety and consistency – not risk or even innovation.

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5. Location, Location, Location: Capitalizing on Mexico's Proximity to the US Market

Mexican value propositions.

Business in Mexico is simple.? It may be better to say, that Mexico WANTS to be simple.? It’s got 3 main value propositions:

a.????? Location & geography.? It shares a 2000-mile border with the world’s spendiest market.?

b.????? Trade Rules.? If you optimize your operation, you will pay extremely low duties.? You will also export 100% of your production.?

c.????? Lower cost base.? It’s still cheaper than China, but inflation and adverse currency moves have made Mexico a more expensive environment in which to operate.?

A product leaving Monterrey can reach the warehouse in Chicago in 3 – 5 days.? In China, we say “Wow, that quick?”.? In Mexico, they say, “Which is it?? 3 or 4? In China, you were thousands of miles and 12 time zones away. In Mexico, you are on the same Zoom call (while it is still light out), the same morning meeting, the same functional team as everyone in HQ.

Your value here is not judged by the relationships you maintain or the bureaucratic disasters you avoid. It's all about how efficiently you can integrate with the US market. ?

Final Word:?

Nearshoring is a disruptive process, and it is gaining momentum just as geopolitics, national politics, AI, economic uncertainty and military conflicts are making senior managers worry about their jobs.?

Mexico presents a different competitive environment than China does, even within the same organization.??

If you are a senior MNC manager or run your own medium-sized company, then you spent a lot of time in China solving problems, making connections, and managing relationships (including government, regulators, suppliers, service providers, etc.).? Those aren’t jobs in Mexico.? When the specialists and top decision-makers are in the same time zone, your relationship-building superpowers are not in demand.? ??

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Next:? Adding Value in Mexico

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