Global supply chain realignment creates Bay Area opportunity
Occasions are converging to create a window of alternative for North America — if the USA, Canada and Mexico can seize it. It’s a chance for Bay Space corporations as nicely.
World provide chains are realigning. Heavy reliance on China is a specific concern, as pandemic lockdowns there harm manufacturing, tariffs from the U.S.-China commerce conflict stay in place, China’s authorities pursues statist insurance policies, and the potential for extra political disruption looms. This doesn’t imply that corporations will simply choose up their baggage and go away China. Its market is just too giant and its provider base too deep for any sudden change. However a latest survey by the American Chamber of Commerce in Shanghai reveals that U.S. corporations are reconsidering their long-term future, and plenty of have both moved some funding elsewhere or are planning to.
The place that funding goes is up for grabs. Aside from companies that return to the USA, most are prone to go to those three locations: Southeast Asia, India or Mexico. In that lineup, Mexico has distinct benefits. Like India and Southeast Asia, it has a younger workforce and certified engineers. The U.S.-Mexico-Canada Settlement (USMCA), the successor to NAFTA, gives an institutional framework that assures transparency and market entry for each commerce and funding. USMCA undergirds an more and more built-in North American market that may develop in significance as areas (Europe, Asia and North America) consolidate. Most essential, Mexico affords extraordinarily quick provide strains, with the fluid cross-border motion of products and on the skilled stage of individuals. With proximity comes lowered prices and transportation occasions and the chance to cluster trans-national suppliers.
Website location specialists report a rising variety of enquiries and investments from United States and world corporations. Occupancy in Mexico’s industrial parks grew 30% final 12 months. Guadalajara, Mexico’s tech hub, is attracting new curiosity, and border states Chihuahua and Nuevo Leon (dwelling to Monterrey) and inside states Queretaro and San Luis Potosi are drawing industrial funding. Nuevo Leon is taking the lion’s share (50%). In January alone, 23 corporations introduced nearshoring investments totaling $2.5 billion. Chinese language suppliers are being informed by their U.S. prospects that with excessive U.S. tariffs, they must be in North America. Cross-border location adviser Nepanoa reviews that after final 12 months’s supply-chain disruptions in China, U.S. corporations are more and more trying to Mexico for his or her sourcing.
Digital elements and tools are attracting vital funding. Trying forward, semiconductors provide a specific alternative. alternative. On the North American Leaders Summit in January, the three international locations agreed to coordinate semiconductor provide chains, with a concentrate on complementary funding alternatives. A primary-ever trilateral North American semiconductor discussion board can be held later this 12 months. For Mexico, this is a chance to safe a task within the provide chain, supporting U.S. fabs.
There’s additionally sturdy alignment round batteries and electrical autos. In January, the Mexican affiliate of U.S., EV producer Cenntro Automotive, introduced a $200 million funding to provide lithium-ion batteries in Monterey. Tesla plans to open its first plant in Mexico, additionally in Monterey.
With the shift in world provide chains in full swing, this chance is Mexico’s to lose. To compete it wants to supply infrastructure, certified employees and security. A lot of these parts are in place, but it surely must put its finest foot ahead. The shift can also be a chance for Bay Space corporations trying to diversify their sourcing and convey manufacturing nearer to dwelling. Tijuana could be visited on a day journey from SFO (in comparison with a 15-hour flight to Asia), and Guadalajara, the place Silicon Valley corporations have already got a footprint, is simply three hours away. Baja California is in the identical time zone as California, and the time distinction with different main enterprise facilities is simply two hours. Many Mexican states and cities have business-friendly insurance policies, infrastructure and universities that may provide expertise. If Mexico competes for the nearshore market and Bay Space and different California corporations reply, each economies and provide strains could be strengthened in methods that may profit enterprise and customers in addition to nationwide safety.
Sean Randolph is senior director on the Bay Space Council Financial Institute.
