The relocation of companies from the United States to its neighboring Mexico has produced a new phenomenon called nearshoring. Nearshoring is the strategy by which a company moves part of its production and supply chain closer to its final destination, in this case, the US, the largest market in the world.
Against the backdrop of the crisis between the US and China and the COVID-19 pandemic, multinational companies have started thinking of new strategies to move their supply chains to more friendly environments. While Asia will continue to enjoy large multinationals’ presence, Mexico is experiencing a boom of U.S. manufacturing firms compelled to relocate their factories from that region.
For its part, Mexico has skilled professionals and advanced facilities, and in many cases, it has lesser costs than many countries in Asia. Besides, Mexico has well-established production and logistics chains built over half a century with the United States. Another attractive factor for nearshoring is that the US and Mexico share time zones. Last but not least, Mexico, the US, and Canada have had a free trade agreement since 1994, which positively impacts tariff reduction for those companies based in Mexico.
Over the last six months, more than 400 companies have expressed interest in moving their supply chains to Mexico. The automotive industry, particularly the Electric Vehicles (EV) sector, is positioned to make the strongest impact. As of 2023, Mexico is among the top ten car manufacturers in the world, thanks to the presence of big firms that assemble their vehicles on the Mexican side, which are then sold in the US market.
In this context, BMW announced an investment of 800 million euros in its San Luis Potosí plant to assemble electric cars. This investment is followed by the recent announcement made by Tesla to open a manufacturing center of electric vehicles in Mexico. Tesla’s factory to be open in the Monterey area will be the first one outside the US, China, and Germany.
Decades of development in the automotive industry, including an extensive auto parts sector, have created the terrain allowing Mexico to become a world leader in EV in the nearshoring era.
Opportunities for Israel
Israel is Mexico's first trading partner in the Middle East, and Mexico is its second Latin American trading partner. Trade between Israel and Mexico has increased by 500% since a free trade agreement was signed in 1999. In 2022, bilateral trade between Mexico and Israel passed the billion dollars.
In the past years, some positive developments have boosted the bilateral relationship. In 2017, the Mexican petrochemical company Mexichem acquired the Israeli agricultural company Netafim, the world leader in drip irrigation technology, for 1,895 billion dollars. Similarly, Mexican corporations like Grupo Bimbo have invested in Israeli startups and venture capital for the last three years.
Despite the excellent health of Mexican and Israeli economic relations, much can be done. As Mexico benefits from the nearshoring phenomenon, Israel can benefit from it too. Most Israeli startups dream of marketing their products in the US so that Mexico might offer them an entry port. In addition, Mexican corporates can join forces with Israeli startups to create new partnerships. Mexican corporates need innovation to boost their industries and enhance their products, while Israeli startups need corporate partners to test their technologies and, as investors.
Israel has 47 electric vehicle startups that develop batteries for e-vehicles, charging stations, and electric vehicles management tools, among other innovations. Many of these startups are ready to partner with the flourishing EV industry in Mexico.
As a bridge between Latin American strategic challenges and Israeli technologies, noga is already supporting this kind of partnership: Grupo Quimmco, from Monterrey, will carry out a pilot with Make my Day, an Israeli startup specializing in Charging Optimization for Electric Vehicle Drivers and Fleets.
The Israeli innovation ecosystem must take advantage of this opportunity, as nearshoring is here to stay.
