That are many reasons that Mexico is an obvious choice for nearshoring. Its location, large talent pool, and cultural affinity to the United States make for a combination that is unparalleled.
It also offers a series of “2020 Advantages” that will come to define the next decade of development, including the nation’s proficiency in agile software development, its widening free-trade agreements such as the Trans-Pacific Partnership, and its ability to exploit nascent tech trends as Silicon Valley moving south.
“The industry could accelerate growth as the labor rates become more attractive in dollar terms.” – Rodrigo Slelatt, of A.T. Kearney
One additional benefit is currently allowing those who have already established operations to get even more out of their sourcing strategy: the exchange rate. While this isn’t unique to Mexico — the dollar has been strengthening against most world currencies for nearly two years now — the benefits of the peso’s value have increasingly made labor costs in Mexico more comparable to rates in Asia.
So with such opportunity, it makes all the benefits of Mexico an even better value proposition. “The main trend affecting nearshoring in 2016 will be the continuing appreciation of the dollar and currency fluctuations south of the border,” said Rodrigo Slelatt, partner of global management consulting firm A.T. Kearney.
The two-year chart, via XE.com, shows just how much the dollar has gained against the peso. The rate has fallen off its February high, but the current 18-to-1 value of the peso is making certain costs one-third more attractive than they were two years ago.
The turn in the price of oil in the fall of 2014 has caused similar currency values throughout Latin America. So while many countries have improved their standing in this regard, Slelatt says the advantages it has given Mexico have been as vast as anywhere.
“Mexico is in a good position to capitalize from the currency depreciation,” he said. “While still not at the levels of India and China, the currency exchange is often the deciding factor for U.S. managers who choose Mexico over other, longer-distanced centers. The country has an impressive installed platform of voice, process, and systems nearshoring services that dates back over 20 years, and the industry could accelerate growth as the labor rates become more attractive in dollar terms.”
Though the foundational reasons still provide the best case for nearshoring in Mexico, this is just one more log for an already brightly burning fire. The nation is a great buy at any price — this just makes it a bargain too good to pass up.