Mexico Wins: A Shift From Asia

Mexico Wins: A Shift From Asia

This article is featured in our latest edition of The Rising Tide, a weekly online publication for business people and economic developers. To read the entire edition, subscribe?here. ?

In an effort to bolster resilience and reliability following supply chain disruptions caused by the pandemic,?port bottlenecks, extreme weather, and geopolitical conflicts,?new data indicates that more companies are bringing some production closer to end-users.

For American companies, the big winner is Mexico, while there appears to be less sourcing from Asia.

Last year, large American manufacturers solicited chemicals, construction materials, and other goods from six times as many suppliers based in Mexico as they did in 2020, according to procurement software firm Jaggaer.?

At the same time, the number of suppliers in China that received procurement bids declined by 9 percent in 2021, Jaggaer said, using data from its 30 biggest U.S. manufacturing customers with an average of over $30 billion in annual revenues.

Jaggaer?tracked a 514 percent increase from 2020 to 2021 in Mexican suppliers receiving bids from its big U.S. buyers and a 155 percent increase in Latin American suppliers receiving bids over the same period. The company?found those manufacturers sought goods from 26 percent fewer suppliers in the Asia-Pacific region.

?Asian Companies, Too

And for a variety of reasons, more Asian companies are also setting up manufacturing operations in?Mexico, according to the consulting firm Kearney, which publishes an annual Reshoring Index.

These overseas suppliers, which American companies have been depending on, are building or acquiring locations closer to?the U.S.?They then ship their manufactured components and parts for final assembly into?the U.S.

This shift allows companies to claim the products were domestically produced, thus redefining reshoring in ways that?reflect the evolving realities of new global supply chains by incorporating certain nearshored activities.

"We are seeing a significantly increased focus from apparel and footwear companies on finding reshoring and nearshoring opportunities as a way to both mitigate supply chain disruptions and increase sustainability," said Kearney partner Brian Ehrig in a press release.

The Reshoring Index tracks the extent to which America is reshoring manufacturing back from low-cost countries in?Asia?that have benefitted for decades from US companies offshoring manufacturing.

" ... The near to midterm future of reshoring looks more promising than it has in any year since we started tracking the Reshoring Index in 2013," said Patrick Van den Bossche,?lead author of the annual Reshoring Index report.

?Onshoring Misguided Says the IMF?

A recent report from the International Monetary Fund, efforts by the U.S. and other countries to fix?supply-chain problems?by boosting domestic production aren’t likely to be effective.

“Policy proposals to reduce dependence on foreign suppliers, especially in strategic sectors, have gained prominence, including in major markets such as Europe and the United States,” IMF economists wrote in the report released last week.

Such policies “are likely misguided,” the IMF economists said, adding that “supply chain resilience to shocks is better built by increasing diversification away from domestic sourcing of inputs.”

The Biden administration wants to?boost domestic production?and encourage the so-called reshoring of industries that have moved overseas, saying it will both create U.S. jobs and better insulate the nation against shortages from goods imported from other countries,?such as semiconductors.

The IMF noted that trade has bounced back remarkably quickly and that countries unaffected by shutdowns were often able to quickly increase their capacity to supply other regions.?“The resilience of trade through the pandemic suggests that such proposals may be premature, if not misguided,” the IMF said.

By doubling down on domestic production, a country’s factories may have their own domestic suppliers disappear in a crisis, whereas if companies had diverse international suppliers they would have a fallback option.?Also important, the IMF said, is making sure that supplies in one country can be quickly substituted for another, which is what nearshoring would essentially do.

The report noted that some companies have already begun undertaking such efforts. General Motors?Co. is seeking to reduce the number of different types of semiconductors that it uses so supplies that are disrupted from one factory can more easily be substituted by production elsewhere.?Toyota Motor?Corp. has sought to make more of the components of its cars easily substituted across different models.

Dean Barber is the principal of Dallas-based BBA, offering consulting services to economic development organizations and companies for location analysis.?We ask the right questions and?find practical and tactical solutions that work.?


Muhammad Adeel

Sales Manager at LinkedIn

2 年

Thanks for sharing and my life's umber one pillar that always speak truth.i used only mobile and my mobile battery don't give enough time so in my office before charging I switched off.

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