In the wake of the COVID-19 pandemic and escalating tensions with China, American companies are actively seeking alternatives to mitigate their supply chain risks and reduce dependence on Chinese manufacturing. Nearshoring, the process of relocating operations closer to home, has emerged as an explosive opportunity for American and Mexican companies to collaborate like never before.
In this WikiCFO Article we’ll identify why nearshoring is gaining momentum, as well as highlight the proper preparation and best practices for a smooth transition to nearshoring.
Addressing Supply Chain Challenges
The disruption caused by the pandemic exposed vulnerabilities in global supply chains, affecting businesses worldwide. The United States experienced significant supply chain disruptions prompting many companies to reconsider their reliance on distant manufacturing bases, especially in China. Nearshoring to Mexico provides an efficient solution by reducing transportation time and ensuring a more robust and reliable supply chain.
Mexicos Geographical Proximity and Time Zone Advantage
Mexico’s geographical location offers distinct advantages to American companies considering Nearshoring. Its proximity to the United States facilitates shorter transportation times and lower logistics costs. Additionally, operating in the same time zones allows for smoother communication, collaboration, and real-time decision-making.
Abundance of English-Speaking Human Capital in Mexico
One of Mexico’s key strengths is its abundant pool of English-speaking talent. The country has a strong focus on education and has made significant strides in developing a skilled workforce proficient in English. This linguistic advantage allows for seamless communication between American and Mexican teams, reducing language barriers and promoting collaboration.
Cost-Effective Labor
Nearshoring to Mexico provides access to cost-effective manual labor, which can significantly impact a company’s bottom line. Mexico offers competitive wages compared to the United States, making it an attractive option for companies looking to reduce labor costs while maintaining high-quality production standards.
Recognizing the advantages of nearshoring to Mexico, especially the labor costs, Strategic CFO created NearSourcing Accounting Solutions. A blended model of a traditional in-house accounting department and outsourced accounting. The daily tasks are handled remotely by qualified accountants in Mexico that are your dedicated accounting department, who travel to meet you on site for quarterly reviews of financial results, analysis and forecasts in person. Since they are in the same or similar time zones they are working in your office via Teams virtual presence, giving the company the same control they’d have over an in-house accounting department. With NearSourcing Accounting solutions, we’ve reduced our clients annual accounting costs by as much as 60%.
Overcoming Challenges with Nearshoring
While the benefits of nearshoring are evident, successfully transitioning operations requires careful planning and execution. Here are the key considerations for companies embarking on a nearshoring journey:
- The Right Management Team: A competent and experienced management team is crucial for leading the transition. They should possess a deep understanding of both American and Mexican business practices to navigate potential challenges effectively.
- Revised Business Plan: Companies need to develop a clear and comprehensive business plan that accounts for the variables associated with operating in Mexico. This includes understanding the regulatory environment, cultural nuances, and market dynamics.
- Implementing the Right Systems and Controls: To ensure seamless operations, it is essential to implement systems and controls that align with the company’s goals and objectives. This includes adopting best practices from both American and Mexican industries, leveraging technology, and establishing robust reporting mechanisms.
- Addressing Accounting Differences: Accounting practices can be a significant obstacle in Near Shoring transactions. To facilitate a smooth transition, it is crucial to align accounting practices with U.S. Generally Accepted Accounting Principles (GAAP) to ensure transparency and facilitate future financial activities like M&A transactions or debt requirements.
Nearshoring: A Strategic Opportunity for American & Mexican Companies
Nearshoring presents an exciting opportunity for American and Mexican companies to collaborate, diversify supply chains, and leverage each other’s strengths. The benefits of geographical proximity, time zone advantages, access to a skilled English-speaking workforce, and cost-effective manual labor make Mexico an ideal near-shore destination. However, successful nearshoring requires thorough preparation, including assembling the right management team, revising business plans, implementing effective systems and controls, and addressing accounting differences. By embracing these considerations, companies can maximize the potential of nearshoring and drive long-term growth and success.
The team here at Strategic CFO boasts many seasoned, bilingual professionals with international experience across industries. If your company is considering nearshoring any part of its operations to Mexico please schedule a free consultation!
