While the COVID-19 pandemic revealed vulnerabilities that sent many organizations looking for ways to bring supply chains closer to home, geopolitical tensions have also encouraged companies to avoid dependence on China. MedTech, like the automotive sector, is turning to Mexico where it can easily reach the vast North American market and benefit from favourable trade policies and skilled labour.
Customers selling products into North America especially will gain the benefits of nearshore pricing and the simplified logistics of a border location
President Walter Tarca, Forefront Medical Technology
Expanding Mexican Operations
A number of heavy hitters in the MedTech world — Medline, Medtronic, Philips, GE Medical Systems, Siemens, Smiths Medical, Cardinal Health, and Becton Dickinson among them — already have a well-established presence in Mexico while other international medical technology companies of varying sizes are expanding their operations in the country.
In 2022, the medical device and technology component maker Nordson Medical announced the opening of a new manufacturing facility in Tecate. “Our decision to build our facility in Tecate was driven by several factors including labour availability to ensure that we could staff our facility as we continue to grow, skill level and experience of available labour and staff, and general logistical assessment,” said VP David Zgonc. “Additionally, the relative location to the US and our other operating facilities made sense from simplicity and cost of logistics standpoint.”
More recently, the Singapore-based medical equipment contract manufacturer Forefront Medical Technology decided to open a manufacturing facility in Juarez. “Our Mexico manufacturing plant will provide our global customer base with greater flexibility and choice in deciding where they want their products manufactured,” asserted president Walter Tarca. “Customers selling products into North America especially will gain the benefits of nearshore pricing and the simplified logistics of a border location.”
Supply Chain Resilience
North America, led by the United States, the world’s largest importer, has long been exceedingly reliant on imports from the rest of the world with the value of the region’s total imports, excluding natural resources, growing from 26 to 35 percent of its gross output between 2012 and 2022.
The COVID-19 pandemic uncovered the susceptibility of the globalized supply networks that have become the norm and the need to build more supply chain resilience. And while China has historically been North America’s largest supplier, recent US-China tensions have given companies, another reason to look elsewhere.
“The longer the supply chain is, the easier it is to fall apart. We saw [it] during the pandemic when we couldn’t get product out of China, while Mexico continued to produce with almost no reduction whatsoever,” said Douglas L. Donahue, co-managing partner of Entrada Group, a firm that assists international companies in creating a manufacturing footprint in Mexico.
The Growing Attractiveness of Mexico
In this context, Mexico has emerged as an increasingly viable production option for the rest of North America thanks namely to its geographical proximity, but also to beneficial trade conditions. Not only does the United States-Mexico-Canada Agreement (USMCA) facilitate regional trade, but the country’s Manufacturing, Maquila and Export Services Industry Program (IMMEX) enables foreign companies to operate in Mexico under a preferential, low-tax cost structure.
Mexico’s skilled workforce is an additional asset as the country transitions to a knowledge-based economy with its manufacturing clusters supplying localized concentrations of skilled workers. “The greatest benefit of nearshoring … to Mexico is that the country offers a highly-trained and educated workforce,” said Jorge Gonzalez Henrichsen, co-CEO of Nearshore Co., which helps medical device organizations set up their operations in Mexico.
Relocating to Mexico can translate into important savings for companies. According to McKinsey, certain production lines stand to save 15 to 25 percent of their total landed cost and the automakers Ford, Tesla, Audi and BMW have already taken notice and set up operations there.
Another factor swaying the MedTech industry’s decision to establish operations in Mexico is the US hike on tariffs on medical products imported from China. “Under the Trump Administration and carried by the Biden Administration, there have been tariffs put on a number of different medical device products,” said Donahue.
Bureaucracy and Political Climate
Setting up shop in Mexico is not without difficulties with local bureaucracy, like the lengthy approvals from the Federal Committee for Protection from Sanitary Risks (COFEPRIS), at the top of the list. “The process tends to be slower than in other countries,” says Henrichsen.
Another concern is the current not particularly business-friendly MORENA party government under president Andres Manuel Lopez Obrador. “Much of the nearshoring interest in Mexico is occurring in spite of Mexico’s government’s policies, rather than because of them,” said Ryan Berg, Director of the Americas Program at the Center for Strategic & International Studies in a recent interview.
While the country’s upcoming elections may see a shake up, there is an additional obstacle when it comes to Mexico’s desirability for business: corruption. According to the 2022 Corruption Perception Index, Mexico ranked 126 out of 180 countries with more corruption in the world.
