MACRO INTELLIGENCE MEMO

Mexican Business Leadership: Capturing Nearshoring Opportunity

CONFIDENTIAL Date: June 2030 Prepared by: The 2030 Report, Latin American Corporate Strategy Subject: Strategic Options for Mexican Firm Leadership

EXECUTIVE SUMMARY

Mexican CEOs in June 2030 operate in the most favorable strategic environment of any examined context: nearshoring boom is creating genuine market opportunity; manufacturing employment is growing; firms with nearshoring exposure are prospering. The strategic challenge is not navigating decline but rather capturing opportunity before competitors do.

The most successful Mexican CEOs are those positioned to serve nearshoring supply chains, provide logistics/distribution, or supply materials supporting nearshoring manufacturing. The key strategic question is not whether to participate, but how aggressively to pursue nearshoring opportunity.

STRATEGY 1: THE NEARSHORING SUPPLY CHAIN POSITIONING

Mexican manufacturers can position themselves as suppliers to nearshoring manufacturing. This requires:

1. Quality and Reliability: Nearshoring customers demand quality equivalent to previous suppliers; reliability and on-time delivery are non-negotiable.

2. Scale and Capacity: Nearshoring creates enormous demand; suppliers must invest in capacity to serve substantial volumes without supply disruption.

3. Cost Competitiveness: While nearshoring is happening partly due to cost advantage, cost competition remains intense. Suppliers must continuously improve productivity.

4. Geographic Positioning: Proximity to major nearshoring hubs (Monterrey, Guadalajara, Querétaro) provides advantage.

A small-to-mid-size Mexican manufacturer positioned to supply nearshoring (precision components, packaging, assembly subassembly) can invest in capacity and positioning, then capture multi-year revenue and profit growth as nearshoring expands.

The risk: if nearshoring slows or reverses, excess capacity becomes stranded asset. Building in sufficient flexibility to pivot if needed is prudent.

STRATEGY 2: THE LOGISTICS AND DISTRIBUTION PLAY

Nearshoring creates enormous logistics requirements: receiving materials, storing goods, distributing to customers, managing returns. Mexican logistics firms have opportunity to position themselves as critical to nearshoring supply chain.

Logistics firms investing in: - Warehouse and distribution center capacity in manufacturing regions - Last-mile delivery networks serving manufacturing and customers - Supply chain software/visibility capabilities - Cross-border logistics specialization

are capturing genuine market opportunity. This is less risky than manufacturing positioning because logistics demand scales with any nearshoring activity regardless of specific manufacturing trends.

STRATEGY 3: THE DIRECT MANUFACTURING PARTICIPATION

Larger Mexican firms have opportunity to establish manufacturing facilities themselves, either as wholly-owned or as joint ventures with foreign investors. This is highest-risk, highest-reward strategy.

The opportunity: establish modern manufacturing facility in Mexico, serve North American market, capture benefits of Mexican labor cost and USMCA access. Success requires: - Industrial competence (manufacturing expertise) - Capital availability for facility investment - Ability to attract and train quality workforce - Management capability for complex operation

Success examples exist: some Mexican firms have established electronics assembly, precision manufacturing, and specialized production facilities that compete effectively in North American markets.

The risk: capital intensity is high; execution challenges are substantial; competition from other nearshoring participants is increasing.

STRATEGY 4: THE TRADITIONAL BUSINESS TRANSITION

Traditional Mexican firms not positioned for nearshoring directly can transition toward adjacent opportunities:

• Supply to nearshoring: Traditional manufacturing firm can shift product mix to supply nearshoring manufacturing rather than relying on internal product sales.

• Private label/contract manufacturing: Establish contract manufacturing capabilities serving global firms seeking nearshoring capacity.

• Consolidation play: Smaller traditional firms can consolidate with competitors, create scale, and reposition for nearshoring supply or logistics roles.

This is transition strategy: acknowledging that traditional business model may be declining while identifying adjacent opportunity that leverages existing capabilities.

STRATEGY 5: THE INTERNATIONAL EXPANSION

Mexican firms prospering domestically can expand into Central America and South America, where they have geographic and cultural proximity advantage. This provides growth beyond Mexican nearshoring saturation.

A Mexican manufacturing firm could establish facilities in Guatemala, Honduras, or Central America, serving regional markets and competing against global competitors with manufacturing cost advantage.

This is lower-risk than greenfield nearshoring facility but still requires operational execution capability.

THE TALENT AND ORGANIZATIONAL CHALLENGES

Mexican CEOs face talent constraints similar to peers globally: demand for skilled workers exceeds supply. However, constraints are somewhat milder than in developed economies because Mexico still produces greater supply of willing workers.

Response strategies: 1. Invest in training: Establish apprenticeship programs, partner with technical schools, and develop workforce systematically.

1. Geographic recruitment: Recruit from regions with less immediate nearshoring opportunity, offering relocation support.

2. Automation: Where feasible, invest in automation to reduce labor dependency.

3. Wage strategy: Offer competitive wages to attract and retain quality workers without creating wage inflation that undermines cost advantage.

FINANCIAL STRATEGY AND PESO MANAGEMENT

Mexican CEOs with substantial peso-denominated revenue and USD-denominated costs face currency risk. Peso depreciation (22% since 2028) improves competitiveness but creates accounting challenges.

Financial strategies: 1. Natural hedging: Generate revenue in USD (export, nearshoring supply to US customers) to offset costs in USD.

1. Financial hedging: Use currency forwards to lock in favorable exchange rates on USD-denominated obligations.

2. Pricing strategy: Adjust pricing gradually to reflect peso movements, maintaining margin while managing customer relationships.

3. Operational flexibility: Minimize USD-denominated fixed costs; maximize variable cost structure.

GEOGRAPHIC STRATEGY: NEARSHORING HUB CONCENTRATION

The most successful Mexican firms are concentrating in nearshoring hub regions: Monterrey, Guadalajara, Querétaro, Ciudad Juárez. These regions have: - Existing manufacturing infrastructure - Workforce familiarity with manufacturing employment - Government support for manufacturing - Logistics connectivity

Firms in these regions benefit from agglomeration effects: proximity to other suppliers and customers, worker availability, and government investment in infrastructure.

THE DRUG CARTEL REALITY

A painful aspect of Mexican business strategy: operating in regions with cartel presence creates real security risks. Extortion, theft, and violence are genuine operational risks in some Mexican regions.

CEOs must: 1. Location selection: Choose locations in relatively secure regions if possible.

1. Security investment: Invest in physical security, personnel protection, and intelligence gathering.

2. Relationship management: Maintain appropriate relationships with government and security forces.

3. Insurance and contingency planning: Maintain appropriate insurance and contingency plans for disruption.

This is not unique to Mexico (organized crime affects some operations globally), but it is more pronounced in Mexico and cannot be ignored in strategic planning.

TRADE POLICY AND USMCA DEPENDENCY

All nearshoring strategy is dependent on USMCA continuing to provide rules-of-origin treatment and tariff-free access. Changes to USMCA (potential renegotiation by US administration) would materially affect Mexican competitiveness.

Smart CEOs: 1. Monitor trade policy: Track USMCA discussions and potential changes 2. Diversify: Develop revenue sources less dependent on USMCA if possible 3. Government relationships: Maintain active relationships with government to influence trade policy advocacy

CONCLUSION: CAPTURING THE NEARSHORING MOMENT

Mexican CEOs operate in unusually favorable strategic environment: genuine nearshoring boom creating market opportunity; government support for manufacturing; reasonable labor cost advantage. The strategic imperative is to position firms to capture this opportunity while it lasts.

The most successful strategies: - Direct participation in nearshoring supply chains - Logistics and distribution specialization - Consolidation and reposition of traditional businesses - International expansion leveraging Mexican cost advantage

The key risk: nearshoring may not persist indefinitely. Building in flexibility and avoiding concentration risk is prudent.

The 2030 Report | June 2030 | Confidential