Nearshoring: Why EU Furniture Companies are Moving Their Manufacturing to Mexico
As Furniture brands in the EU are setting their sights on the North American market in an effort to expand, a particular form of nearshoring has seen a recent boom: Establishing operations in Mexico in order to be geographically closer to their clients and the final destination of their products.
Many furniture manufacturers based in the EU have been successful with nearshoring in eastern Europe specifically to support their northern European clients. Now they are trying to duplicate that achievement in Mexico to support their North American sales. Numerous furniture brands have chosen to nearshore their production by outsourcing it to a specialized OEM partner, such as LTP Furniture. By doing so, they are better able to focus their resources on sales and marketing in order to build their brand in a newer market.
In this article, we explore this recent Mexican nearshoring boom: what is the motivation behind it and what are its advantages?
New Developments in Mexico Make it Easier to European Companies to Operate There
The Mexican government has made important changes in order to entice European companies to set up their production in the country, including a commitment to improving its infrastructure, as well as general security, in order to help manufacturers operate free from disruption. It has invested in its rail and highway systems, allowing trucks to travel conveniently from Mexico to border cities on a federal highway system, and upgraded its electrical grid.
In addition to the United States-Mexico-Canada Agreement (USMCA) trade agreement (formerly known as NAFTA), Mexico has several dozen other trade agreements in place, such as allowing foreign companies to import raw materials free from tax and duty. Mexico signed a Free Trade Agreement with the EU in 2000, making it an export-oriented manufacturing hub to countries hoping to reduce their manufacturing costs. One of these agreements is the IMMEX program which LTP Furniture is a part of.
As a result of reduced tariffs, European companies are given preferential access to world markets if they move to Mexico.
The Advantages of Nearshoring your furniture production
European manufacturers are turning to Mexico as opposed to Asia or elsewhere to set up production facilities to better serve their customers in North America. This offers many advantages to EU companies because they can;
- Be more flexible in their production and deliveries, thereby serving customers more quickly and efficiently.
- Maintain lower stock levels and free up dead cash locked up in inventory.
- Significantly shorten lead and delivery times, a critical consideration because after the Covid pandemic North American companies have managed to decrease their lead times significantly and right now lead times are a decision making factor for many customers buying furniture.
- Offer direct deliveries to end-customers and end-users.
- Decrease carbon emissions by simplifying their supply chains and transportation.
- Facilitate a lower cost structure.
- Decrease their costs can be as much as 40% more cost effective than onshoring and 70% more cost effective than offshoring. For example, labor in Mexico is approximately 70% less expensive than labor in the United States. Further, Mexico has many trading agreements to make it easier and cheaper for foreign companies to produce and export their goods from Mexico.
- Easily get the local North American teams to collaborate with an operation in Mexico due to proximity and time zone, language and culture.
- Utilize that Mexico has open borders and has lighter contingency rules in place.
- Decrease their shipping costs, as a result of the Covid pandemic, a container costs up to four times as much as before the pandemic, with a negative effect on European exports.
- Work with a skilled workforce: Mexico has a large pool of skilled workers with experience in furniture manufacturing, as well as other industries.
There are other considerations as well. European companies can save a substantial amount of money by transferring manufacturing operations to Mexico due to less expensive labor costs and lower customs and duty charges. In addition, the geographical proximity between Mexico and the United States and Canada means the ability to work in similar time zones.
About the Writer
Meryl Siegman is a content writer specializing in the interior design industry. She has an avid interest in the evolution of office design in a world impacted by the COVID-19 pandemic.
About LTP Group A/S
LTP Group A/S is a privately Danish-owned company consisting of two divisions: LTP Garment and LTP Furniture. From 12 privately owned factories in Lithuania, Belarus, Ukraine, Vietnam, Romania, and Mexico, we produce clothing and furniture for more than 100 recognized brands worldwide. LTP's head office is in Copenhagen, Denmark. LTP Group A/S was established in 1991 and now employs 2,700+ dedicated employees and has a turnover of 100+ million EUR with solid financial results.