In recent years, the concept of nearshoring, particularly nearshoring to Mexico, has become increasingly prominent, with the COVID-19 pandemic accelerating its adoption. The nearshoring market is substantial, with the global nearshore outsourcing market valued at approximately $90 billion in 2023, and Mexico is capturing a significant portion of this growth.
The country's nearshore business has been estimated to be worth over $20 billion annually, driven by its strategic location, competitive labor costs, and highly skilled workforce. But what exactly is nearshoring, and why is Mexico emerging as a key destination?
What is Nearshore Mexico?
Nearshoring is the practice of relocating business processes or services to a neighboring country, typically one that shares a time zone or has a similar cultural alignment. Nearshore Mexico specifically refers to U.S. and Canadian companies outsourcing or establishing operations in Mexico. This strategy contrasts with offshoring, where businesses move operations to distant locations, often in Asia or Eastern Europe.
However, despite the contrast, many companies with global operations are increasingly establishing a presence in both regions to capitalize on the unique advantages each offers. By combining the cost efficiencies and specialized skills available in Asia and Eastern Europe with the proximity and cultural alignment of nearshoring in Mexico, these companies can create a more resilient and versatile global strategy.
Mexico has emerged as a leading nearshoring destination, thanks to its strategic location, skilled workforce, and cost advantages. For instance, labor costs in Mexico are up to 60% lower than in the U.S., yet the country boasts a highly educated and skilled workforce. According to the World Economic Forum, Mexico ranks 2nd in Latin America for the number of engineering graduates, producing over 130,000 engineers annually. This makes it an attractive option for businesses seeking to optimize costs without sacrificing quality.
The impact of nearshoring since the pandemic
The COVID-19 pandemic reshaped global business strategies, exposing the risks of relying too heavily on distant offshore operations. Supply chain disruptions, long lead times, and communication barriers underscored the need for more resilient and agile business models. This shift was particularly evident in the technology sector, where the rapid pace of innovation and the critical need for timely software updates made long delays unacceptable. Enter nearshoring.
According to a report by Gartner, 33% of supply chain leaders have moved or plan to move operations closer to home, and Mexico has been a top beneficiary. The country’s proximity to the U.S. means shorter shipping times—approximately 2 days compared to the 2-4 weeks from Asia—reduced transportation costs, and easier compliance with regulatory standards. For tech companies, this proximity also means faster turnaround times for development cycles, real-time collaboration, and a more streamlined process for scaling operations.
Moreover, the U.S.-Mexico-Canada Agreement (USMCA) has further bolstered Mexico's attractiveness for nearshoring. The agreement, which replaced NAFTA in 2020, introduced more favorable trade terms, making it easier for companies, especially in tech, to operate across borders. This has enabled tech firms to tap into Mexico's growing pool of skilled professionals while maintaining close ties with their North American markets.
Top industries benefiting from nearshoring to Mexico
- Technology
The technology sector has been one of the biggest beneficiaries of nearshoring to Mexico. The country’s IT services market is projected to grow to $7.7 billion by 2025, reflecting an annual growth rate of 7.6%. Mexico is home to a growing pool of tech talent, with over 700,000 software developers as of 2023. Nearshoring to Mexico enables tech companies to access this talent pool while benefiting from the cost savings and operational efficiencies that come with geographical proximity.
- Manufacturing
Manufacturing has long been a cornerstone of Mexico's economy, but nearshoring has given it new momentum. Mexico’s manufacturing exports to the U.S. increased by 11% in 2021 alone, with the automotive sector being a major driver. The country’s robust infrastructure, including its 76 free trade zones and well-established supply chains, makes it an ideal nearshoring destination for manufacturing companies looking to reduce costs and minimize risks.
- Automotive
The automotive industry has seen significant benefits from nearshoring to Mexico. The country is the 7th largest producer of vehicles in the world and the largest in Latin America, with an output of over 3 million vehicles annually. Companies like General Motors and Ford have expanded their operations in Mexico, leveraging the skilled labor force and cost efficiencies. The proximity to the U.S. also allows for quicker delivery times and more efficient supply chain management, crucial in an industry where timing is everything.
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The strategic advantage of a nearshore tech team
In the pre-pandemic world, technology was often viewed as an added value to a company’s products or services. Today, technology is the product or service, making it indispensable to have an efficient global tech team. A nearshore tech team in Mexico offers a strategic advantage in this context.
The time zone alignment between Mexico and the U.S. facilitates real-time collaboration, leading to faster development cycles and quicker problem resolution. This is particularly important in tech, where delays can lead to missed opportunities or lost revenue. Additionally, Mexico’s cultural and linguistic similarities with the U.S. reduce the risk of miscommunication, which is critical for complex tech projects.
Cost is another significant factor. Salaries for tech professionals in Mexico can be 40-60% lower than in the U.S., yet the quality of talent remains high. According to a study by Stack Overflow, developers in Mexico rank among the top in the world in terms of skill and expertise. This cost-quality balance makes Mexico an ideal location for nearshoring tech operations.
Finally, integrating a nearshore tech team into a broader global strategy enhances flexibility and resilience. A hybrid model that combines nearshore and offshore teams allows companies to maintain 24/7 operations, optimize resource allocation, and tap into the best talent from around the world. This approach is especially valuable in today’s fast-paced, technology-driven market, where the ability to pivot quickly is often a key competitive advantage.
Nearshore Mexico is more than just a trend—it’s a strategic shift that is transforming how businesses operate globally. The country’s combination of cost efficiency, skilled labor, and strategic location make it a prime destination for nearshoring, particularly for tech companies looking to stay ahead in a competitive market.
As we navigate the post-pandemic landscape, nearshoring to Mexico offers businesses a way to build resilience, enhance operational efficiency, and drive innovation. For companies that prioritize agility and adaptability, integrating a nearshore tech team in Mexico could be the key to sustaining growth and success in the years to come.
At Codifin, we specialize in helping businesses leverage the advantages of nearshoring in Mexico. Whether you’re looking to expand your tech team or streamline operations, our expertise and local presence can guide you every step of the way. Let us help you unlock the full potential of nearshoring and drive your business forward.
