By Richie Lin    Photo：CANVA

Supply Chain reshoring and diversifications are really happening. According to the latest statistics, Mexico has surpassed China to be the number one country which exports goods to USA. From 2020 till September 2024, the percentage of China has dropped 21% to below 15%, while at the same time, Mexico has increased from 12% to 16%. And the percentage combined with Taiwan, South Korea and Vietnam also increased from 5% to 12%. Mexico and Alternative Asian Supply Chian (ALTASIA) have become the beneficiaries for the ongoing tensions between USA and China. The alternative Asian supply chain is a result of the widening geopolitical confrontation between USA and China. This is forcing global manufacturers to look elsewhere in Asia for new production sites.

However, no single country in the region comes close to replicating China’s importance as an export hub. But a crescent of 14 countries are together beginning to provide competition. This fourteen countries include Japan, South Korea, Taiwan, the Philippines, Indonesia, Singapore, Malaysia, Thailand, Vietnam, Cambodia and Bangladesh, all the way to Gujarat, in north-western India. Its members have diversified strengths, from Japan’s high skills and deep pockets to India’s low wages. This is an opportunity for a useful division of labor, with some countries making sophisticated components and others assembling them into finished products.

The evolution of global supply chains, driven by factors like near shoring and resilience considerations, has propelled Mexico into a pivotal position. Mexico’s manufacturing landscape experienced notable growth in various sectors, such as automobiles, electronics, medical devices, home appliances, and machinery. According to the statistics, every year, there are over USD 600 billion in automotive, machinery, electronics, consumer goods, medical equipment and other goods flow into USA across southern border with Mexico. Mexico, particularly its northern states, is a favorite destination for companies that aim to position their own operations or link with suppliers closer to the US, a process known as nearshoring which often means shifting production capacity away from China. Sometimes, too, it’s Chinese companies setting up in Mexico to avoid American tariffs.

Mexico introduced the Decree for the Promotion of the Manufacturing, Maquila and Export Service Industry (IMMEX Decree) in 2006. A “maquiladora,” or “maquila,” is defined as a foreign-owned factory, typically staffed by low-wage workers. Maquiladoras have also become known as “border factories,” since most of them are located near the US-Mexico border. They have proliferated since the introduction of the North American Free Trade Agreement (NAFTA) in 1994, replaced by the United-States-Mexico-Canada Agreement (USCMA) in 2020. IMMEX offers several tax benefits to program participants.

These benefits include 1. Duty-free imports. Companies don’t incur duties levied on temporarily imported raw materials or imported machinery. 2. VAT exemption. Temporarily imported raw materials and fixed assets are not subject to value-added tax (around 16 percent). 3. Lower corporate tax rates. Under certain conditions, a company that qualifies for the program can benefit from a special tax regime offering preferential rates. And if any company doesn’t want to set up a Mexican entity in the first place, they can also choose the Shelter Program. Shelter program means a non-resident manufacturer that can benefit from operations in Mexico without having to set up a legal presence in the country. The shelter company assumes all risks and liability and acts as the legal representative of the business.

If you are importers and whole-sellers in USA, you will feel more and more stress of managing so wide-spreading supply chain. In the past, you can rely on one single country -China to fulfill all your requirements. But the geopolitical tensions and economic incentives force you to choose multiple countries to do the jobs of China can do alone in the past. This phenomenon makes suppliers and buyers all face the challenge of multiple points of origin and multiple points of consumption. For example, the transit time and the routes from the ports in India to USA are totally different from those in China. So if buyers purchase products from these countries at the same time, they would need to send purchase orders at different time to make sure the products can arrive to shelves of the stores at their designated time. They need an all-around logistics provider to provide logistics from multiple countries to multiple countries including pick up, customs clearance, freight forwarding, warehouse management and last mile door delivery. This logistics company must have full-fledged data, knowledge, experiences and networks to provide such a complicated cargo movement.

Furthermore, a total logistics provider must also have well-designed IT system to provide 24 hours online tacking to track each purchase order transparently, and VMI to provide real time products in/out and inventory in different warehouses. Supply chain reshoring and diversifications force customers to take care of suppliers in so many different countries that they need total logistics providers to optimize the flow of goods from the multiple points of origin to the multiple points of consumption. Under the big scope of USA vs China trade war and the importance of supply chain resilience, the ideas like China plus one, nearshoring, reshoring have penetrated into the minds of each single part in the supply chain. Setting up factories in the southern states of USA and Northern states of Mexico might bring opportunities of tax benefits and shorter transits. However, multiple supply chain locations mean the logistics will become more and more complicated. The challenges will be how to manage and coordinate the manufacturing and shipping of different parts of supply chain. In the past, people might separate different logistics providers to handle different parts of worldwide logistics. However, this will cause the waste of time on collecting multiple information and more problems of broken chains. This is the time to find a single logistics window which can provide all services you need, all information you require, and all problems you face.

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