Latin America: Nearshoring Development in Mexico

Alluring foreign investments

Mexico is the largest Spanish‑speaking country and has long been a key location for nearshoring activities. Since the 1970s, Mexico has been an important destination for manufacturers seeking to relocate or expand, including companies from Japan, South Korea and mainland China. Economic ties to North America through the United States-Mexico-Canada Agreement (USMCA) have further strengthened the regional integration and supply chain.

The US stands out as the primary investor in Mexico, accounting for approximately 40% of overseas investment for the past decade. This figure spiked to 56% in 2022, underscoring the robust economic relationship between the US and Mexico.

The logistics challenges stemming from the Covid‑19 pandemic and geopolitical tensions have accelerated the nearshoring trend in Mexico. Taking advantage of the USMCA, and the country's advanced transport network and logistics infrastructure, many international conglomerates have set up operations in the country to mitigate risks to their supply chains.

The Mexican states situated along the US border and with advanced infrastructure are the major destinations of FDIs. Mexico City, home to the headquarters of many international corporations, serves as a hub for national transport, connecting regions across the country. In 2023, Mexico City drew in over US$11.2 billion FDIs (flow), representing 30.9% of Mexico's total FDI inflow. Following closely were Nuevo León and Sonora, each with some US$2.5 billion (around 7.0% of the total), due to their geographical advantages.
Nuevo León has emerged as a prime destination for nearshoring in Mexico, drawing around 76% of the nation's nearshoring activities. Thanks to its accessibility, state‑of‑art infrastructure and efficient electronic customs clearance system, Nuevo León offers manufacturers and businesses a high level of cross‑border logistics efficiency and facilitates streamlined operations within the region.

Extensive logistics and infrastructure

Supply chain routes usually start from Mexico’s West and East coasts, ultimately meeting in the central regions of the country. Processing and assembly of imported raw materials and intermediate goods often take place in the coastal areas which offer cost advantages in terms of logistics, land and labour compared to central regions.

Upgrading infrastructure and logistics is important for Mexico in order to attract overseas companies to relocate or expand their activities in the country. Mexico has made significant strides in adopting advanced technologies to bolster its trade capabilities. Mexico has also been expanding the capacity of its infrastructure. Several public and private infrastructure projects, are slated for completion in the next few years with new railways, ports and expressways coming into operation.

Current logistics situation

Mexico's extensive highway and railway network crossed the country and connects seamlessly with the US transport systems. Major ports on Mexico’s West and East coasts, such as Lázaro Cárdenas, Manzanillo, and Veracruz, link with significant industrial and commercial hubs like Guadalajara. The network converges in the central highlands in bustling metropolis of Mexico City, band extends northwards to Monterrey, Nuevo León, and Texas in the US.

Most cargo transportation in Mexico is by road (57%) or railway (13%), the two accounting for almost 70% of Mexico’s total cargo volume. The remaining 30% of transportation is maritime transport.

The merger of the Canadian Pacific Railway (CP) and Kansas City Southern (KCS) into Canadian Pacific Kansas City (CKPC) in April 2023 has facilitated trade of goods from Mexico to the US and Canada via an unified single‑line railway. This integration eliminates the need for railroad switching, significantly reducing transportation times for Mexico‑US trade.

Mexico's highway network connects seamlessly with the interstate highway system of the US for simple cross‑border transportation. For instance, in Monterrey, the capital of the state of Nuevo León, the highways directly link with US’s Interstate 35 (I‑35) which stretches from Laredo, Texas to Minnesota. In Texas, the I‑35 connects with the I‑10, a major east‑west interstate highway that runs from Florida to California.
Looking forward, Mexico is planning several new infrastructure projects to improve the supply chain network. New railways, expanded ports, and upgraded highways will increase capacity and enhance efficiency.

In essential areas for Mexico‑US cross‑border trade such as the state of Nuevo León, the Nuevo Leon‑Texas train project to build the first cross‑border railway between Mexico and the US has been announced. This will offer an alternative to the heavily congested I‑35 corridor. Additionally, two new bridges each with five lanes will be built to cross the Rio Grande in Nuevo Laredo, a city in the state of Tamaulipas. A budget of US$60 million has been assigned to the bridges linking Mexico with Laredo, Texas, jointly funded by the Mexican and US governments.

The Port of Lázaro Cárdenas is one of the largest seaports in the Pacific area. A Hong Kong‑based port operator has invested over US$220 million to expand the port’s terminals by 50%. It is expected that after the expansion, the Port of Lázaro Cárdenas will have a total capacity of 2 million TEUS, further strengthening Mexico’s facilities for international trade.

Diverse industrial clusters

Besides its improving logistics network, Mexico possesses a solid industrial base with a vast network of industrial parks that support its diverse manufacturing sectors. Mexico welcomes foreign companies to these industrial parks in view of their importance in driving the country’s economic growth. Thus, industrial organisations and associations offer a range of business services, from site selection to assisting potential investors in launching their operations.

According to the Mexican Association of Private Industrial Parks (AMPIP), there were over 460 industrial parks spread across various regions of Mexico in 2023, with approximately 30 newly established parks. A substantial portion of the 4,000 tenants within AMPIP industrial parks in 2023 hailed from foreign countries, comprising close to three‑quarters of the total tenants. More than 2,000 were from the manufacturing sector (51.5%), followed by logistics (23.1%) and automotive (16.5%).

In general, industries producing electronic goods and high‑value products choose to establish their factories in industrial parks located in the north of Mexico, with ready access to the North American market. Conversely, sectors such as consumer goods, food, and manufacturing tend to concentrate in the south and along the coasts due to lower costs and the convenience of importing raw materials and intermediate goods from overseas.
AMPIP is one of the key facilitators fostering Mexican’s industrial growth and promoting best practice among its members. The extensive network of AMPIP covers the entire country, providing tenants with access to key trade routes. AMPIP offers comprehensive support services for foreign firms looking to invest in and establish operations within existing industrial parks. These services include recruitment, accounting, finance, customs brokerage and liaising with authorities for permits.

As of June 2024, there were about 72 new industrial parks under construction, and related investments have surged by 85% from US$1,720 million in 2022 to US$3,185 million in 2024. This highlights the dynamic growth of manufacturing facilities in Mexico. Approximately 40% of these investments were directed towards the development of new industrial parks, while one‑third were dedicated to enhancing existing facilities.

First Chinese-backed industrial park

In 2018, mainland China’s Holley Group and Futong Group collaborated with Mexico’s Santos Family to establish the Hofusan Industrial Park, the first Chinese‑funded industrial park in Mexico. Situated in the northern part of Monterrey, the capital of the state Nuevo León, the park illustrates the significance of the partnership between mainland China and Mexico.

Nuevo León holds a crucial position when it comes to nearshoring, attracting international firms, including Chinese ones, to settle in Mexico. Its importance is due to the State’s geographic advantage, the well‑connected transportation network, an ample pool of high‑skilled workforce and top universities that excel in research on advanced technologies and innovations.

Hofusan Industrial Park provides one‑stop professional services to its Chinese tenants which include business registration, staff recruitment, accounting and customs consultation. To simplify relocation for these tenants, Hofusan Industrial Park offers support and preferential policies to help with land acquisition, factory construction, and labour disputes resolution. There are currently more than thirty mainland manufacturers inside the park, some of which produce consumer goods such as furniture and home appliances.

Hofusan Industrial Park aims to establish all‑round community in the vicinity in addition to the zone for industry. The Park is well‑equipped with infrastructure for industrial and logistics use, such as 6‑lane roads, an independent water supply, sewage treatment and electricity generation. The industrial park is designed with commercial and residential areas, providing entertainment, sports, healthcare and other facilities.

Mexico’s extensive logistics and infrastructure network, including highways, railways, and ports, has significantly enhanced its appeal to international investors and manufacturers. Consequently, more multinational companies are opting to relocate their factories to Mexico. Riding on this nearshoring trend, Mexico has become a major destination for foreign investment in Latin America, and has growing prominence in fostering connectivity within the global market.