Nearshoring in Mexico – Real Estate Challenges
Resulting from China’s COVID-19 restrictions, the semiconductor chips shortages and the global supply chain crisis, our Firm has been receiving multiple requests from American and Canadian companies to provide advice and legal support on how to set up new manufacturing facilities in Mexico and even relocate manufacturing activities from China and Southeast Asia to Mexico.
Despite the multiple advantages of relocating to Mexico, such as USMCA trade rates, labor costs and the undeniably proximity to the US and Canada, moving from one side of the world to the other it is not an easy task.
Strictly from a real estate perspective, and in addition to any assessment concerning areas as security, labor and taxation, we have identified the main aspects to bear in mind while considering relocating manufacturing activities to Mexico:
- North America’s Geography. Each of USA, Canada and Mexico have coasts to both the Atlantic and Pacific Oceans, and the USA-Mexican border stretches from coast to coast. However, the decision on where to locate a manufacturing facility in Mexico shall be influenced by the market or region to be served from such facility.
For example, while relocating a manufacturing facility to Ciudad Juarez, Chihuahua may be a good idea for supplying goods to Texas, it might not result an ideal option for exporting to any other country in the world. In the same sense, while relocating to Tijuana or Mexicali would be the best option for serving the Californian/Arizonan markets, it might not be the best alternative for supplying goods to the Northeast of USA/Canada or Europe. Likewise, the Yucatan peninsula has become one of the top destinations for the relocation of facilities for its proximity to Florida.
- Availability of Real Estate. Since the nearshoring phenomenon started, it has become evident that even though Mexico has premier class industrial parks all along the USA-Mexican border and in other industrial cities, Mexico was not prepared to receive the wave of new entrants that are interested in establishing facilities closer to the USA and Canada.
Fortunately, land in the north of Mexico is not extremely limited and developers have the capacity of serving new clients. However, this would normally entail that new entrants will either have to wait until developers build new industrial facilities or will need to invest additional resources to build their own facilities in Mexico.
Many of our clients have opted out for entering into built-to-suit agreements with Mexican developers to speed up the process.
- Infrastructure and Transport. While there are big extensions of land to be developed in Mexico, it is of utmost importance for the set up of new manufacturing facilities that the location chosen is well connected through roads, railroads or ports nearby, in order to simplify logistics and reduce transportation costs and risks.
- Availability of Water and Services. An additional issue that has been considered by our clients has been whether the desired location has the capacity of providing them with the necessary utilities and resources for their processes.
For example, as industrial activities may have a high-water demand, it is very important to locate new facilities in areas where the there is enough capacity to bear the exploitation of water by new players without being overly exploited. The above, as overly exploited aquifers are usually subject to bans for the issuance of new water concessions and hence, the supply of the necessary water may become costlier. In this regard, while the northern part of Mexico has extreme drought issues, other regions have enough water to serve new players.
Another issue to consider is the capacity of the electric power system in the area and the existence of LNG/LPG pipelines.
- Incentives and permits. When deciding the location of a new facility, it is also relevant to consider whether Federal and State governments offer incentives for the investment to be carried out, as well as the permits, licenses and authorizations required for the beginning of operations of the manufacturing facilities and to maintain them in good standing.
Relocating to Mexico has proved to be a viable and profitable option for many companies. However, a thorough assessment on how, where and when to relocate is of the essence.