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Moving from China to Mexico: Manufacturing and maquiladoras

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Elderberry:
RSM by Rosa Ana Aranda López, Tax Partner, RSM Mexico 3/16/2023

Tesla is the latest and most high-profile company to commit to investing in Mexico, with a new plant in the country just announced. With challenges for Chinese manufacturing looking set to continue, it won’t be the last.

In a little under two decades, China has transformed from a minor player in a burgeoning market for offshoring to become “the world’s factory”. By the start of this decade, it accounted for about 30% of the world's manufacturing output. As The Economist points out, it produces nearly as much as America, Japan and Germany combined.

However, its dominance may be coming to an end – or at least have reached the high-water mark. A combination of factors has led companies in the US and elsewhere to reconsider their overseas operations and look at options closer to home, including Mexico, with its maquila model as an attractive alternative for manufacturers.

In a sign of the times, perhaps, at the start of this year reports revealed that Tesla has delayed expansion of its “gigafactory” in Shanghai. At the beginning of March, meanwhile, it announced a new plant in northern Mexico – an investment said to be worth over $5 billion.

If China’s outsourced operations relocate, though, it will be more a sign of its success than its failures. If businesses want to succeed in nearshoring their operations, they must consider the move carefully and look before they leap. Challenges remain, no matter where they locate, and if China has shown us anything, it is that the world can alter very quickly.

A long time coming

There have been several drivers for international businesses to look again at their reliance on Chinese manufacturing – for both the long term and short term. Working backwards, the most recent is the continued disruption from the pandemic and China’s “zero Covid” policies, which have only lately been abandoned and caused havoc for many businesses.

Long after the US, Europe and elsewhere had relaxed or even entirely abandoned restrictions. Outbreaks in China saw strict lockdowns hastily implemented and manufacturing facilities closed with little notice – continuing disruption throughout 2022. A Bloomberg analysis in May last year found 180 companies globally mentioning China and lockdowns In their first-quarter earnings calls.

More: https://www.rsm.global/latinamerica/en/insights/moving-china-mexico-manufacturing-and-maquiladoras

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