Mexico has become an attractive market for foreign direct investment
What advantages does Mexico offer?
Nearshoring consists of relocating a business operation from a distant country to a neighboring country. In the midst of this trend, Mexico has become an attractive market for foreign direct investment (FDI) thanks to the following factors:
- Strategic geographical position and competitive costs
- Young and talented population, which translates into a high-quality labor force
- Size and strength of its internal market
- Macroeconomic and political stability
- Open economy that provides access to the most important markets worldwide through a network of free trade agreements
- Mexico is part of the T-MEC, an agreement that provides preferential access to North American markets
Overview of FDI in Mexico
According to data from the Organization for Economic Cooperation and Development (OECD), Mexico is the world’s ninth largest FDI recipient, totaling USD 35.3 billion in 2022. On the other hand, the 14th edition of the Global Best to Invest - a ranking that lists the main countries and the most attractive metropolitan areas for foreign investment - recognized Mexico as the best place to invest in Latin America in general.
Advantages of nearshoring in Mexico
Industries in Mexico with potential for nearshoring
EY Analysis: business environment in Mexico
- Balance opportunity and political risk. Mexico provides a favorable location for manufacturing firms, though a subset of political risk elements create a challenging operational environment and should be managed as a “cost of doing business”.
- ESG issues add to known operational risks in the country. Regulation in many sectors and businesses is uncertain and evolving – providing both opportunities and challenges for Nearshoring Investing Companies.
- Mexico-China and U.S.-Mexico factors raise strategic questions. Mexico has a favorable posture towards Chinese trade and investment; however large-scale imports or raw materials may face more complex regulatory and safety scrutiny.
- Supply chain strategy. Supply chain exposure is pervasive throughout the identified political risks and raises important considerations for Nearshoring investments and locations.
How EY can help
One Stop Shop - Nearshoring Investment Services Network is a one-stop-shop within the EY network, in which multiple services related to the establishment of a new investment or manufacturing operation in Mexico are offered so that investors can find a complete solution within EY Mexico.
Our nearshoring investment services
- Market Overview. Describe the Industry landscape and characterize the main manufacturing hubs.
- Site Selection. Analyze the main factors to define the site and shortlist possible locations.
- Detailed Cost Analysis. In-depth assessment of end-to-end cost structure.
- Business Alternatives and Project Roadmap. Identify advantageous business models and Develop a project roadmap.
- Financial due diligence
- Mobility services
- Expertise to help HR teams make informed decisions about potential locations based on specific criteria such as accessibility, transportation infrastructure, availability of skilled labor, cost of living, quality of life, etc.
- Assistance with immigration and tax matters related to the deployment of expatriates in Mexico and the structure of their international secondments.
- Tax analysis and advice to define whether a shadow payroll is required for the client's expatriate population.
- Assistance in the calculation of estimated costs for possible assignments in relation to labor matters, social security contributions, income tax and payroll tax.
- Analysis of changes in the operating model and supply chain:
- Establishing a future state model that is fiscally efficient but aligned with the client's business strategy.
- Holistic analysis that includes variables such as the tax (transfer pricing, indirect taxes, etc.), legal, IP, accounting, org design, tax/non-tax incentives, free trade agreements and supply chain network optimization.
- Support to efficiently manage the transition from the current state to the future state from the point of view of tax, legal, organizational design, etc.
- Labor due diligence
- Evaluation of the initial business design and preparation of a report that easily shows whether it complies with applicable labor regulations.
- Identification of labor risk factors that could affect the new operation.
- Integration of OME, country risks, and relocation and mobility strategies to implement a model that is labor efficient and aligned with the client's business strategy.
- Suppliers, Manufacturing, and Logistic Network Analysis and Design
- Supplier and Raw Materials Local Sourcing and Support Negotiations
- Materials and Transportation Flow Optimization Analysis Based on Cost
- Layout Design of the New Operation (Manufacturing and Warehouse)
- Operation or Relocation Project Management
Tax and legal compliance services
- Monthly tax compliance assistance for resident and non-resident expatriates
- Repatriation support
- Monthly and annual corporate tax compliance services