Mexico stands to gain potentially $168 billion more in non-oil exports over the next five years, thanks to companies that embrace “nearshoring” as a strategy to improve customer service and supply chain networks.

So says a new financial research report by Banorte, which forecast a broad increase in businesses relocating their production processes to geographies closer to consumption centers.

What this means: The study showed Mexico will keep benefitting from this evolution, helped by its geographical location, demographic advantages, economies of scale, lower costs and a new way of managing risks and doing business in global supply chains.

      • Nearshoring is the practice of partnering with suppliers, manufacturers and other necessary entities that have a more accessible supply chain.
      • For instance, a U.S. company might practice nearshoring by working with a supplier in Mexico instead of one in China.

Quotable: “We see Banorte as the bank of nearshoring,” Chairman Carlos Hank González said. In an interview with Bloomberg in New York, he said the bank plans to add adding 800 jobs as the nation becomes a destination for factories looking to relocate from other far-flung countries to be closer to the United States.

      • The new jobs will range from marketing to customer care, with most of the hiring coming in the wholesale division to offer services to small and medium-size businesses.
      • “It’s an extraordinary opportunity for Mexico, and specifically for the north,” he said. “We have the capacity – because we’re a local bank – to support these investments.”

Zoom in: Small and medium-sized companies must not get overlooked as they play a major role in ensuring commercial success in nearshoring. 

      • At the 86th Banking Convention of the Association of Banks of Mexico, Carlos Hank González emphasized banking as a means to advance nearshoring, with benefits reaching throughout Mexico.
      • Central themes at the event, in mid-March in Merida, Yucatan, covered inclusion, sustainability and nearshoring.

By the numbers: Mexico sends 81.8% of its exports to the United States, with nearly 60% going to three states: Texas, California and Michigan. 

Focus in: The industries most likely to register growth because of nearshoring include agricultural goods and livestock; chemicals and plastics; apparel and accessories; basic metals; machinery and equipment; and electric and electronics.

      • Even toy manufacturers could see a boost. 
      • “Mexico is a sector leader as it ranks third in terms of global production, only behind China and Brazil. In addition, the industry holds a relevant opportunity for other domestic industries as around 50% of supplies are provided by local producers,” the Banorte report said.

Yes, but: While the economic opportunities are plentiful, “Mexico can’t just sit on its laurels,” the report said. “The country must foster public and private incentivized investments, improve Rule of Law indicators, raise competitiveness and productivity and integrate states and regions not currently part of the supply chains.”

      • Progress must be made under a “four-helix” model that includes government (at its three organizational levels), the private sector, education institutions and society.
      • To fully capitalize on this trend, improvement should be made in public infrastructure, including electricity, water availability, roads, bridges and other facilities.

For more: Banorte’s “Zoom Nearshoring” report is part of a new biannual research series on economic trends. Its digital platform, “Banorte Nearshoring Monitor,” will generate intelligence on nearshoring to provide leaders with a timely, complete and innovative information hub.