Mexico has emerged as the most popular destination for foreign investors seeking to relocate manufacturing activity in the face of US-led trade disruption as well as the chaos wrought on global value chains by Covid-19.
Foreign investors announced 34 relocated projects into Mexico between January 2016, when US President Donald Trump assumed office, to March 2020, according to greenfield investment monitor fDi Markets.
The vast majority of these relocations were from Asia in the auto and consumer electronics sectors, as the new US-Mexico-Canada Agreement (USMCA) – which comes into force in July – and Washington’s trade war with China prompted investors to move production closer to the US market.
The next most popular relocation destination was Vietnam, with 16 relocation projects announced during the period. The southeast Asian country has benefited from trade tensions between Washington and Beijing, as well as rising wages and production costs in China, which has encouraged manufacturers to move production across the border into Vietnam.
A number of large multinationals have opted to locate operations in Mexico and Vietnam to adjust to shifting requirements of global trade.
Under USMCA, for example, automobiles must have 75% of their components manufactured in Mexico, the US, or Canada to qualify for zero tariffs (up from 62.5% under NAFTA).
US carmaker Ford decided to phase out a facility in Spain to shift the production of its commercial vans to Mexico to comply with the stricter country of origin rules, according to fDi Markets data. Likewise, US engine manufacturer Cummins is planning to move some operations out of China, India and Brazil into Mexico to meet the new requirements.
In Asia, South Korean conglomerate Samsung plans to shut down its smartphone production capacity in China and move it to Vietnam, while Google relocated the production of its Pixel smartphones from China to Vietnam last year.
Pandemic accelerates trend
The onset of Covid-19 is set to further accelerate this trend, as the crisis lays bare weaknesses in the global value chain system with China as its chief manufacturing hub.
US tech giant Apple is reportedly planning on building a factory in Taiwan in bid to shift part of its supply chain away from mainland China.
The Japanese government, meanwhile, has earmarked $2.2bn to encourage Japanese companies to withdraw from China and relocate home or move elsewhere in the region.
Other locations that have benefited from nearshoring and reshoring efforts, include Germany, Poland and France as well as Thailand and India, according to fDi markets.
In the US, the midwest rust belt states have attracted relocation projects because of cheaper costs and the availability of specialised labour compared to other areas of the country. Last year, Xellia Pharmaceuticals made a $1bn relocation from North Carolina into Ohio.