Compliance Risk Management Crucial for Businesses Nearshoring to Mexico
As multinational companies seek to gain a competitive advantage and insulate their operations from global market disruptions, nearshoring has emerged as a popular strategy. Mexico, with its advantageous location, labor expenses, and access to a skilled workforce, is an attractive option for relocation of business activities.
Political Environment: Unpredictable Changes in Government Policies Pose Risks
One of the most significant risks for businesses operating in Mexico is the country’s political environment, where changes in government policies, regulatory requirements, and labor laws can create challenges. The energy policy reform promoted by President Andres Manuel Lopez Obrador has implications for companies in the manufacturing and logistics sectors.
- To mitigate this risk, businesses should:
- Conduct a comprehensive risk assessment
- Define mitigation strategies with the advice of local experts, including attorneys, accountants, and consultants familiar with the Mexican business environment
Economic Risks: Inflation and Fluctuations in Global Demand Can Impact Operations
Manufacturing operations and profitability can be impacted by various economic risks such as inflation and fluctuations in global demand. Companies must factor in these global trends to secure their finances and mitigate risks.
Security Threats: Organized Crime, Extortion, and Corruption Pose Risks
Companies operating in Mexico should also confront security threats that can jeopardize the safety of employees, facilities, and supply chain networks. These threats range from organized crime to extortion to corruption.
- To handle these risks, businesses should:
- Enact effective security policies and solutions
- Adopt background checks and due diligence efforts for employees and third parties
- Implement cybersecurity safeguards
- Develop clear protocols for preventative and reactive measures
Supply Chain Risk Management: Sourcing Diversification and Logistics Key
Effective supply chain risk management is critical for manufacturers operating in Mexico. Businesses must deal with sourcing diversification, logistics, and specific customs requirements to mitigate risks.
- To ensure a successful relocation, companies should:
- Carefully identify and vet potential partners in Mexico
- Map out current transportation and operational infrastructure
- Develop contingency plans to prevent delays or disruptions in the supply chain
Conclusion
By taking proactive measures to manage compliance risk, businesses can effectively mitigate risks and ensure a successful nearshoring experience in Mexico. Conducting thorough risk assessments and developing contingency plans bolsters Mexico’s willingness to provide an optimal operational landscape for foreign investors.