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By Dr. Alejandro Díaz Bautista, International Economist and Research Professor in International Economics at El Colef. Visiting Fellow UCSD’s Center for U.S.-Mexican Studies (USMEX) at the School of Global Policy and Strategy (GPS).
There are diverse benefits that Nearshoring can bring to Mexico in the coming years, from creating new jobs to increasing the country’s exports. The establishment of new industries will bring with it the need to transport more goods safely, so it is crucial to be prepared for the growing insecurity.
Mexico is a coveted country for Nearshoring, which involves foreign investment to produce in a nearby country, thanks to its location and young workforce, providing production advantages at lower costs. To attract more foreign investment, Mexico must address the issue of insecurity related to national products. To capitalize on the opportunity that Nearshoring will bring to Mexico, it will be necessary to implement security measures in all sectors, as insecurity has been on the rise.
Transnational organized crime has spread in Mexico, North America, and other parts of the world in recent years. Criminal hotspots tend to vary in response to security force deployments across regions and countries. International levels of criminal activity are expected to remain high in the coming years.
Regional countries like those grouped under T-MEC or USMCA cannot depend so much on the production of distant countries like Ukraine for inputs for national or regional production. Product exchanges must be as close as possible to end consumers, meaning strengthening the capabilities and security of those involved to generate goods for the benefit of consumers.
Nearshoring prioritizes geographical proximity and involves establishing operations outside the country of origin but within a geographical region of high market and consumption. Distribution centers are installed close to that market, with the aim of shortening supply chains and maintaining the security of goods.
The Biden administration is intensifying its efforts to reduce the growing fentanyl epidemic affecting the United States and expanding beyond U.S. borders.
Mexico, Canada, and the United States held meetings to strengthen alliances and outline joint strategies against the threats of organized crime and insecurity in Mexico. There is a growing concern among companies setting up in Mexico regarding insecurity and the risks it may bring to the integration of production chains.
Risks are related to extortion, as some criminal groups have developed highly sophisticated extortion, robbery, and fraud schemes that can lead to million-dollar losses for Nearshoring-related companies. Another significant risk is related to the transportation of inputs and goods for companies involved in Nearshoring.
Nearshoring could bolster Mexico’s economic development. However, significant challenges must be addressed to make the most of this opportunity in the next five years. Mexico’s weak rule of law hinders foreign investment, limiting the potential creation of jobs, while companies face the risk of disruptions in their operations due to criminal activities.
Finally, addressing the issue of reducing insecurity in Mexico is vital for increasing investments in the sector known as Nearshoring in the country.
