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12 Oct 2022 Updated 13 Oct 2022

Singapore companies look to Mexico as nearshoring gains ground

The Straits Times Sofia Hanna Romero

Singapore companies look to Mexico as nearshoring gains ground

Racer Technology Medica founder and CEO Willy Koh joined a business mission to explore opportunities in Mexico earlier this month. PHOTO: ST FILE

MEXICO CITY - Persistent geopolitical tensions and supply chain uncertainties are prompting some Singapore manufacturers to consider setting up operations in Mexico to produce items for the United States market.

A Mexican base would mean easier access to North American customers, reduced duties and logistics costs, especially in shipping, which have skyrocketed after the Covid-19 pandemic disrupted global supply chains.

Medical manufacturer Racer Technology Medica is one company pondering such a move.

Company founder and chief executive Willy Koh joined a business mission to explore opportunities in Mexico earlier this month.

"This trip gave us the impression that the local medtech scene is also booming, especially in universities where there are many start-ups," said Mr Koh.

"People are not only welcoming, but they are also open to telling you what the problems they have been facing are, and what are the good things."

Racer Technology, which produces items in the areas of in-vitro diagnostics, wearables and life science tool consumables, was one of seven companies on the trip organised by the Singapore Precision Engineering and Technology Association (Speta) and trade promotion agency Enterprise Singapore (ESG).

Speta executive director Simon Lim noted: "There has been a big wave of manufacturing in Mexico, and there is much demand for precision engineering. I think many Speta members know how to support it and provide such know-how."

Nearshoring is both an opportunity and a challenge for Asian manufacturers, with Mexico a prime destination for companies eyeing the US market.

Mr Clarence Hoe, ESG executive director for the Americas and Europe, said the business mission aimed to connect Singapore manufacturers with potential in-market partners to find out more about the manufacturing landscape in Mexico.

Mexico is uniquely positioned given its proximity to the US, the world's largest economy, and its participation in the United States-Mexico-Canada regional trade agreement, which replaced the North American Free Trade Agreement and came into force in July 2020.

But while shifting production to Mexico has its advantages, there are challenges, starting with the message Mexico itself is sending, with the government, which has taken a nationalistic stance on policy matters, creating uncertainty among foreign investors.

One example is the administration's electricity reform, which gave the state-run Federal Commission of Electricity preponderance in the production and sale of electricity, reaching a 56 per cent market share.

Due to this and similar policies that are viewed by experts as being anti-private sector, some companies have decided to wait for the "right moment" to enter the market, said Mr Alfredo Nolasco, CEO and co-founder of Spyral, a consultancy that helps firms invest in Mexico.

Mr Alfredo Coutino, director of Latin America at Moody's Analytics, told The Straits Times that the Mexican "government needs to create a more market-friendly environment, promoting fair competition and providing clear regulations and laws to ensure property rights".

Nearshoring involves placing investments locally within global production chains. Companies that previously had offshored their manufacturing to Asian locations like China are moving them back closer to the parent headquarters.

This presents opportunities for Singaporean manufacturers, noted Mr Hoe: "There is demand for manufacturing in aviation, electronics and medical technology.

"In the long term, nearshoring can bring benefits such as greater control over the supply chain, reduced logistic costs and potential expansion to nearby markets such as Latin America."

Speta's Mr Lim, who, with the members of the business mission met Mexican officials, added: "One thing we realised from many of the political leaders here is that they... feel Singapore is a good model they want to understand better and from which they want to learn lessons.

"As a result, we feel the Singapore brand has value here."



Source: The Straits Times © Singapore Press Holdings Limited. Reproduced with permission.