Tijuana Is a Main Destination for Nearshoring
As the cost of doing business in China continues to rise, many companies are looking for alternatives to manufacture their goods. Mexico is becoming an increasingly attractive option, particularly for businesses located near the U.S. border.
According to professional services firm PwC, shifting production from China could cut operating costs for U.S. manufacturers by 23% if they nearshored to Mexico, and 24% if they shifted to another low-cost country (LCC) in Asia.
“Particularly for North American manufacturers, Mexico is increasingly poised as an attractive option to China, especially for U.S. market sales, given that the USMCA (U.S – Mexico – Canada Agreement) went into effect on July 1, 2020,” says the analysis.
The Main Advantage of Nearshoring to Tijuana
Tijuana, located on the California-Mexico border, has become a major hub for the new nearshoring wave—the relocation of production facilities from one country to another nearby. Nearshoring allows companies to take advantage of lower labor costs and fewer trade barriers while still being close enough to serve customers quickly and efficiently.
Real estate developers forecast that during this year and in 2024 Tijuana will have the availability of 26.35 million square feet of total land and 5.40 million of total rentable area; however, investment intentions could continue to grow exponentially. Moreover, Tijuana captures 10.2% of the total industrial space under construction in Mexico during 1Q2023, according to Datoz data.
Tijuana is a Nearshoring Destination for Companies in the U.S., Japan, and China.
INDEX, a civil association representing manufacturers in Mexico, said Tijuana is a main destination for nearshoring. At least 30 new companies have moved their operations to this border community in the last 18 months.
Most of the companies interested in Tijuana are from the U.S., Japan, China, and South Korea while the sectors they belong to go from medical devices and electronics to aerospace and automotive. Recently, at least two medical-related companies have opened new facilities in Tijuana: BD and UFP Technologies. Also, Asian companies such as Boe Technology and Foxconn had expansions in Tijuana last year.
Moreover, around 20 more companies are on a waiting list to get industrial space to establish operations in Tijuana, but this might take a while.
In fact, the real estate sector has been very active while many manufacturers are looking for industrial space in Tijuana and others are waiting for their manufacturing sites to be ready to start operations.
Nowadays, the vacancy rate in Tijuana is at an all-time low. Pre-leasing continues to take most of the industrial activity and the inventory reached 78.5 million square feet (7.3 square meters), according to a market study conducted by Newmark.
Recently, the Economic and Industrial Development of Tijuana (DEITAC) informed at least 17 real estate developers will invest US$635 million to increase the industrial buildings in Tijuana aiming to accommodate this high demand.
Last year Tijuana had 595 active manufacturing sites, the highest number of facilities in Mexico, and almost 260,000 people currently work in those factories.
Even though nearshoring is booming in Mexico, most of the cities share the same challenges such as power shortage and water availability. These utilities are needed for most operations and more infrastructure is needed in the country.
Nearshoring Goes Beyond The Aerospace and Automotive Industries
In addition to the advantages of nearshoring, businesses are also drawn to Tijuana’s proximity to the U.S. and its workforce availability, especially the highly educated. Moreover, the city has become a major center for technology firms, with many software development companies setting up operations in recent years.
The nearshoring effect in Tijuana might continue in the next couple of years because the Mexican Federal Government has informed at least 400 foreign companies are willing to relocate to Mexico, especially in the Northern part of the country.
Tijuana provides several appealing factors such as cost savings, availability of skills and labor, its proximity to the U.S., and government incentives, which make it an attractive destination for foreign countries. To explore the opportunities of setting up foreign operations in Tijuana, Mexico, get in touch with one of our Manufacturing Industry Experts.