Negotiating the Nearshore Shift: From China's Past to Mexico's Future

Comparing Mexico 2024 and China 2004

End of the Story: Old China Hands are doing Mexico wrong.

Mexico is a great manufacturing option for brands serving the US market. The problem is that many 'Old China Hands' are still operating off their Shenzhen playbook, which is no longer effective. Let’s fix it now.

Nearshoring is a significant trend, and changes in the global supply chain will greatly impact how you conduct business. If you are negotiating with Mexican managers and key hires in the same way that you negotiated in China, you may come across as either arrogant, flakey, or both.

It’s time to take the OLD out of "Old China Hand". If you’ve been in China for the last 20 years – and that describes more than a few of us – then the world has changed. Let’s look at how you can respond.

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Are You Putting the Old in Old China Hand?

A lot of senior managers have been in China for 20 years. I began my work with China in 1996 ( 'Fargo' was in theaters, 'The Macarena' was unavoidable, and the PRC issued special one-day entry permits for Guangzhou from Hong Kong) and relocated to Shanghai in 2002.

For many of you, China represented the last major site selection project you undertook. You went to the Canton Fair or migrated down from Japan, or from HK, or in my case, across from Taipei, and you spent ten years trying to update your business plan on a roller coaster. It was a wild ride but, surprisingly at first and then quite suddenly, it all started working. You became a bona fide success story in China.

And now people are telling you that you have to move.

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It’s time to ask How? – not Why?

I'm directly addressing the setup process. It’s late in the cycle to still be on the fence, and there are plenty of competent voices speaking to the WHY of nearshoring. I’m about the HOW. The first steps are to understand Mexico’s business environment and negotiating culture.

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Here are the 5 big differences between China in 2004 and Mexico in 2024.

1. Relationship with the business world. China was still in the process of opening to the West in 2004.? That year they amended the Constitution of the People’s Republic of China to acknowledge the role of private businesses. If you were setting up in China in 2004, you were still something of a pioneer.

Mexico and the US have a common history (for good or ill) and have been business partners since the 1970s. If you want to be historically accurate, Ford built its first factory in Mexico City in 1925. Mexico is much closer to the US in terms of culture and language. (Spanish is difficult, sure. Mandarin, however, was much tougher.)

2. Technological Dependence. China was still desperately trying to rehabilitate its industrial base in the early 2000s. They were quite clear about what they wanted from Western investors – capital, technology, know-how. Chinese industry needed help from the West so badly that the CCP amended its constitution and changed its legal system to accommodate foreign investment. Mexico 2024, on the other hand, is awash in technical assistance and cutting-edge technologies. GM’s new factories in Ramos Arizpe are among the most sophisticated on the planet, and if TESLA follows through on plans to build a megafactory in Nuevo Leon, then Mexico will be host the most technologically advanced production facilities anywhere.

3. Negotiating culture. Chinese are patient pragmatists. They’re relatively quick to start a relationship and will keep it going as long as they think there is even a small chance of it paying off. Chinese negotiators are pragmatic, tolerant of risk, and patient. Mexican negotiators could be characterized as “decisive skeptics”. They are relatively quick to make a decision – but due to their risk-averse nature and wide range of alternatives, their answer is often NO. When you entered China in 2004, you were viewed as a savior. When you enter Mexico in 2024, you are a potential partner or employer. They like you well enough, but they have options. Lots of options.

4. Government involvement. In China, the government/party was in your business. If you’re still involved in China, you are only too aware of the official presence. In Mexico, however, you’ll be operating at the other extreme. The ruling populist Morena Party barely acknowledges the existence of MNCs manufacturing in Mexico. President Andres Manuel Lopez Obrador (AMLO) is more likely to nationalize an industry than subsidize it. Some states and cities in Mexico are actively trying to attract new investment, but the national government seems conflicted. (FDI is evil, but money and jobs are good to have.)

5. Legal & Regulatory Relationship. The US and China are engaged in a long-term trade dispute that is starting to look a little like an embargo. I’m not criticizing the policies, just pointing out that there is no indication that these restrictions will be lifted any time soon. Trade between the US and Mexico is governed by USMCA trade rules, which replaced NAFTA (in force since 1994). The USMCA is probably the last comprehensive trade agreement that the US will enter into for the foreseeable future.

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Negotiating in Mexico

Mexico in 2024 is not China in 2002. For some managers planning a reshoring effort, however, much of their relevant experience is from China – and twenty years ago. It is difficult to stress how different the negotiating culture is between Mexico now and China in 2002.

This is going to affect you in a few big ways:

• Site Selection
• Scope of deal (for OEMs)
• HR & Key hires
• Sourcing
• Partner or JV negotiations

So, let’s begin with the basics. I’m going to set the stage by asking Artie the AI Analyst for a quick STEEPLE comparison between China and Mexico.

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Dueling STEEPLEs: Comparing Mexico 2023 and China 2004

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The AI is doing what it does best – organizing data. The results are fine. I don’t disagree with any of them. Now let me give you my human assessment of the 3 biggest differences for negotiators.

1. Mexico has been discovered. Mexicans have been doing high-capacity production for US and MNCs for 50 years. When you came to China in 2002, you were a kingmaker. You had capital, know-how, markets, technology – everything! You were rich and foreign, and you could make all the difference in their business.

Mexican factory owners and potential high-level hires have plenty of experience working with US brands. They want your business, but they aren’t as desperate – or as ambitious – as their Chinese counterparts of yesteryear.

2. Government involvement. In China, the central government was in your business – both figuratively and literally. It was always difficult, but for some, it has become impossible to continue operating in China. Mexico couldn’t be more different.? There are two big trade regimes in place -- IMMEX for importing and USMCA for exports. Beyond those two sets of regulations, the Mexican national government doesn't do much to foster FDI. State and municipalities are much more active.

Another aspect of governmental non-interference is that private businesses do many of the services done by the government in China.

Special economic zones? Probably not for you in Mexico. An industrial park that can provide you with business registration services is an option here – and it’s a great one. There is plenty of competition, they know what they’re doing.

In China, policy came from the Party. In Mexico, it’s the states or municipalities that launch initiatives to facilitate businesses like yours – but not all states. Nuevo Leon (capital city: Monterrey) and the city of Guadalajara get the most attention, but others have been active lately.

3. DIY or private solutions. One reason some owners are still on the fence about nearshoring is that their expertise is more about marketing than production. Big multinationals do it all – they are expert marketers, product developers, designers, sourcers, and manufacturers.

But one of the big draws about China – in addition to “race to the bottom pricing” – was contract manufacturing. It seemed you could have anything made – even if your entire plan was a sketch or a picture of someone else’s product. There was always an agent or an assistant manager from the factory that knew where to find it, where to buy it, where to design it, etc. In Mexico, you are expected to show up with all your plans already ready to go.

The one DIY caveat is that the Mexicans aren’t huge fans of breaking away from the pack or taking risks. They like sticking to tried & true methods -- the more formal the better. This is a 6 Sigma operating environment. Factory managers in Mexico follow the plan. If you don't have a plan, then they have nothing to follow and will move on to a better-prepared candidate.

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Final Word:

If you were able to manage successfully in China, then Mexico shouldn’t be too much of a challenge. Culture, language, history, geography, and legal systems in Mexico are all much easier for US and Euro managers to work with than China’s.

In Mexico, your #1 danger is coming across as a risky proposition. If your operating plans are incomplete, inappropriate, or have gaps (such as sourcing or processing), then your counterparties will see that as a sign of risk. Chinese negotiators consider risk to be part of normal business, and they will seek to turn the situation to their advantage. A common practice for Chinese managers was to rely on their network of connections to manage risk, workarounds, and gaps. In Mexico, people don’t share their network as freely.

In China, a big professional network is a sign of intelligence and competence, and people tend to “humble brag” about how many connections they have.

In Mexico, keeping your mouth shut is the indicator of intelligence and maturity. They are not big sharers, and plan on benefiting from YOUR network of connections.? ???