Nearshoring and its labor challenges

The years following the implementation of the labor reform in Mexico are being the years with the highest industrial growth due to foreign investment.

Note published on June 20 2024 en expansion.mx, Opinion section, by Blanya Correal.

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Mexico is not only a privileged destination for foreign direct investment, it is a very interesting market in itself for many brands or products and it is within the top of the largest in terms of per capita volume or  purchases, which has generated significant industrial, commercial and infrastructure development in the country, also offering companies a platform for the accelerated development of their businesses. Additionally, Mexico has highly prepared profiles and an attitude in its workers that is a significant plus at the moment of making the decision of establishing an operation in the national territory; nearshoring, however, represents a challenge for the country in other aspects that need to be resolved if we want to maintain the country’s competitiveness.

The first of the challenges has to do with the increase in the demand for a larger workforce which, according to several sources, will increase by between 500,000 and 2 million jobs. Faced with this situation, there are factors that add to the challenge and require a structural solution.

According to the Manpower 2024 Global Talent Study, the shortage of suitable profiles in Mexico affects 68% of companies, but in industries such as information technologies (79%), services (72%), or logistics (69%), the difficulty for finding talent with the right skills exceeds this average.

Additionally, according to the “Education at a Glance 2017” report by the OECD and the IMCO [Mexican Institute for Competitiveness], Gender gaps in STEM in 2022, every year nearly 110,000 technicians and engineers graduate from all schools in Mexico, a number that is insufficient for covering the expected demand for specialists in the short term.

A key element in this sense, and an opportunity for overcoming this challenge, is related to the participation of women in the Mexican labor market. Although the population distribution on the country is nearly 50/50, in the world of work we find a significant disparity in the number of women that work versus the economically active male population,  reaching a rate of 7 employed women for every 10 men who have a job. And if we zoom in on the positions in the manufacturing sector, the rate drops even further, to nearly 5 women for every 10 men.

Solving the challenge of talent will entail solutions involving both technological and professional training, as well as fostering the participation of women.

Another one of the key factors that represent a challenge in the context of industrial growth due to nearshoring has to do with labor aspects; today Mexico has mechanisms of greater participation by the workers in the negotiation of collective bargaining agreements; this is having a very significant  impact on the cost of labor.

In 2024 we are seeing that salary increases are no longer regulated by inflation and many revisions end three or even four points above this old parameter. This is related to several causes; first, the impact of the increase of the minimum wage which, in the last six-year term, when it doubled, reached the tabulators of over half of the companies, dragging with it the rest of the wage bands, which was capitalized on by the unions in the objective of updating the CCT [Collective Bargaining Agreement].

Another important cause is related to the pressure on the unions that is being posed by the consultations and voting procedures for the approval of the CCT and, thus, according to figures  from the Federal Center for Conciliation and Labor Registration, there is a higher number of calls to strike to apply pressure for better working conditions. Lastly, companies have had to accept this, because beyond the prevention of conflictivity, increases are responding to strategies for the reduction of turnover and a greater attraction of talent.

It is paradoxical, but at the same time real, that the years following the implementation of the labor reform in Mexico are being the years with the highest industrial growth due to foreign investment, which means that because of its characteristics Mexico will continue to attract companies from the United States, Europe, and even countries like China.

With this very clear opportunity, Mexico will have to focus on getting prepared through improvements to the education system, the promotion of gender equality and job certainty. These priorities are key both at the government and at the private level, where companies can develop specific solutions and  act in advance to prevent these factors from becoming obstacles for their businesses.

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Editor’s note: Blanya Correal is an Industrial Engineer with over 25 year’s international experience in Human Resources and labor strategy in several multinational companies such as Coca Cola Femsa, Danone and Nissan. She has been recognized for two consecutive years as one of the 30 best CHROs in Mexico and she is in the top 20 of the ranking of the Most Powerful Women in Mexico according to Expansión magazine. Follow her in LinkedIn. The opinions published in this column belong exclusively to the author.

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