Recalibration of risk prompts companies to look to Mexico
MEXICO CITY — As American companies recalibrate the risks of relying on Chinese factories to make their goods, some are shifting business to a country far closer to home: Mexico.
The unfolding trend known as “near-shoring” has drawn the attention of no less than Walmart, the global retail empire with headquarters in Arkansas.
Early in 2022, when Walmart needed $1 million of company uniforms — more than 50,000 in one order — it bought them not from its usual suppliers in China but from Preslow, a family-run apparel business in Mexico.
It was February, and the contours of global trade seemed up for alteration. The worst pandemic in a century had upended shipping. The cost of transporting products across the Pacific had skyrocketed, and ports were choked with floating traffic jams — a stark indication of the dangers of depending on a single faraway country for critical goods.
Among multinational companies, decades of faith in the merits of making things in China had come under scrutiny, especially as animosity intensified between Washington and Beijing.
At his office in Mexico City, Isaac Presburger, director of sales at Preslow, took Walmart’s order as a sign of his country’s evolving role in the economy, and the opportunities that flow from sharing the same side of the Pacific with the United States.
“Walmart had a big problem with their supply,” Presburger recounted. “They said, ‘OK, Mexico, save me.’ ”
Basic geography is a driver for U.S. companies moving business to Mexico. Shipping a container full of goods to the United States from China generally requires a month — a time frame that doubled and tripled during the worst disruptions of the pandemic. Yet factories in Mexico and retailers in the United States can be bridged within two weeks.
“Everybody who sources from China understands that there’s no way to get around that Pacific Ocean — there’s no technology for that,” said Raine Mahdi, founder of Zipfox, a San Diegobased company that links factories in Mexico with American companies seeking alternatives to Asia. “There’s always this push from customers: ‘Can you get it here faster?’ ”
During the first 10 months of 2022, Mexico exported $382 billion of goods to the United States, an increase of more than 20% over the same period in 2021, according to U.S. census data. Since 2019, American imports of Mexican goods have swelled by more than one-fourth.
In 2021, American investors put more money into Mexico — buying companies and financing projects — than into China, according to an analysis by the McKinsey Global Institute.
China will almost certainly remain a central component of manufacturing for years, say trade experts. But the shift toward Mexico represents a marginal reapportionment of the world’s manufacturing capacity amid recognition of hazards — from geopolitical realignments to the challenges of climate change.
“It’s not about deglobalization,” said Michael Burns, managing partner at Murray Hill Group, an investment firm focused on the supply chain. “It’s the next stage of globalization that is focused on regional networks.”
Given that the United States, Mexico and Canada operate within an expansive trade zone, their supply chains are often intertwined. Each contributes parts and raw materials used in finished goods by the others. Cars assembled in Mexico, for example, draw heavily on parts produced at factories in the United States.
Overall, about 40% of the value of Mexico’s exports to America consist of components made at American plants, according to a seminal research paper. Yet only 4% of imports from China are American-made.
A Walmart representative described the company’s interest in Mexico as part of an effort to make its supply chain less vulnerable to troubles in any one region.
For now, Mexico lacks the capacity to assume China’s place as the dominant supplier of a vast range of goods.
“All the basic materials are still imported from China, because you don’t have the suppliers here,” Presburger said. “The fabrics I use are impossible to get in Mexico.”