Telecoms & IT

Nearshoring in Latin America

Nearshoring has become one of Latin America’s most promising business trends, especially in Mexico.

Nearshoring has become one of Latin America’s most promising business trends, especially in Mexico.

If you aren’t familiar with the nearshoring concept, it is when economies relocate production to strategic countries where operations are cheaper.

Recently analysts, the media, and entrepreneurs have been busy discussing the impact and potential benefits a trade war between the US and China could have for states on their peripheries.

Due to the tensions between these superpowers, Mexico has become a desirable option for US companies. The main reason is its strategic location and close proximity. Other advantages include the various international trade treaties to which Mexico is a party, its skilled workforce, and the ease of transporting goods by land and water to the US.

In countries across Latin America, they can find cheaper labor and—in many cases—less restrictive bureaucracy. This leads to more straightforward and efficient operational and administrative business processes.

For the countries and companies in Latin America, there is no denying a huge opportunity lies in front of them. According to Banco Santander’s Nearshoring Data Monitor report, nearshoring in Mexico could create 8% growth in Mexico’s Gross Domestic Product (GDP) in the next five to six years. 

It’s important to note that despite these opportunities for Latin American companies, they will come with challenges too. Organizations can’t sit around and expect business opportunities to come from abroad. 

Instead of waiting for things to fall into their lap, it’s a great time to reconfigure the business environment, seek to expand, break trade barriers, and diversify to other markets, especially more developed markets.

This tendency to expect development from foreign investment reduces the vision of business leaders. They become less likely to venture into first-world markets because it fills them with doubt.

This major opportunity that nearshoring is creating in Latin America will mean nothing if your company lacks a foundation and growth plan. Companies cannot assume huge opportunities will magically find them. Instead, companies should be working to scale and improve their systems so that they grab it and run with it when the opportunity arises.

By Daniel Marcos, Co-Founder & CEO of Growth Institute