11 Sep 2025 Mistakes That Virtually Guarantee Failure with Nearshoring to Mexico
Written By Jeffrey Cartwright, Managing Partner – 5 min read
As tensions around geopolitical risks, tariffs, and supply chain disruptions rise, many U.S. businesses are looking at nearshoring to Mexico as a strategic solution. While the approach offers benefits like proximity, reduced lead times, and cost savings, the complexities of transitioning manufacturing to Mexico often go underestimated. This article delves into the critical mistakes companies make when nearshoring and provides actionable advice on how to avoid them.
Why U.S. Companies Struggle—And How to Avoid Common Pitfalls
Mistake #1: Assuming Language or Heritage Equals Sourcing Expertise
One of the most common missteps companies make is believing that hiring someone bilingual or of Mexican heritage will ensure sourcing success. While these attributes can facilitate smoother communication or travel logistics, they are far from sufficient qualifications for the complexities of nearshoring.
Language or Relationships Won’t Build a Supply Chain Alone
While many Mexican factories have bilingual leadership, communication tools like Google Translate or Apple Translate bridge any remaining gaps; however, effective sourcing demands far more than language proficiency. It requires technical expertise, strategic negotiation skills, and rigorous supplier evaluation processes.
Similarly, relying on individuals with Mexican heritage or personal connections can sometimes backfire. Mexican business culture places importance on relationships, but sourcing successfully requires objective evaluations and competitive pressure. For example, Mexican factories tend to price their products high when dealing with U.S. businesses, often assuming “wealthy Americans” (yes, we are always viewed that way) can pay a premium. A negotiator who prioritizes relationships over introducing competitive alternatives, such as other factories, countries, or technological substitutions, is at a clear disadvantage.
In one instance, a client from Monterrey, Mexico, highlighted his hesitancy to source locally because relationships with family and friends inflated pricing. Instead of being an advantage, his heritage made achieving cost efficiency more difficult.
Misapplying the China Model to Mexico
Sourcing in Mexico requires an approach fundamentally different from sourcing in China. China offers vast supplier networks supported by trade shows like the Canton Fair and agents who streamline factory connections. In Mexico, such centralized resources are largely absent. Companies must individually identify, qualify, and build relationships with suppliers —a process that is far more time- and resource-intensive.
What Successful Sourcing in Mexico Requires Businesses must adopt a structured and meticulous approach to sourcing in Mexico. The following skills are non-negotiable for success:
- Technical Expertise
Develop a deep understanding of your product’s technical requirements, ensuring suppliers have the capabilities to meet specifications. - Cost Competitiveness
Educate Mexican factories on global competition. Factories accustomed to competing against U.S. labor costs (~$25–$50/hour) must recognize that Chinese labor costs, which are only 25% higher than Mexico’s, set the benchmark for competitiveness. - Building a Supply Chain from Scratch
Mexican factories are often specialized in intermediate goods, not finished products, requiring companies to piece together supply chains themselves. This includes identifying raw material suppliers, qualifying them, and managing multiple rounds of competitive bidding to align costs. - Multi-Round Competitive Bidding
In Mexico, factories often do not provide “rough prices” upfront. Developing 5 or more alternative sources and having them compete in multiple rounds of competitive bidding is extremely important. While all of this is time-consuming, attempting to shorten this time communicates to the Mexican factory a sense of panic or urgency, which means that prices remain higher. At the same time, pressure develops on the buyer to conclude a deal.Also, many large consulting firms have a concept called “Should Costing,” which means that there is sufficient information available to know what a product should cost, and that can be used to challenge actual quotations. This concept also does not exist in Mexico.
- Strategic Supplier Development
Simply identifying factories is not enough. Companies must build relationships, ensure the factory understands the technical requirements, and confirm they are capable of delivering quality, capacity, and on-time delivery. When gaps in capability arise, supplier development becomes necessary to ensure reliability.
- Technical Expertise
Without these competencies, businesses struggle to create resilient, cost-effective supply chains in Mexico.
Mistake #2: Conflating Sourcing and Purchasing
While connected, sourcing and purchasing are radically different functions requiring distinct skill sets.
Purchasing is Administrative
Purchasing focuses on maintaining existing supply chains, ensuring continuity through dependable delivery and quality control. Price negotiation takes a back seat, as the penalties for disruptions far outweigh potential savings.
While buyers claim to be great negotiators and buy at the lowest price, they generally are not. It is more important to have supplier reliability than it is to have the lowest price. Price is never the top criteria in vendor selection. The penalties for disruption of the manufacturing or delivery process are very high. In the event that competitive bidding is done at all, it is generally controlled by the buyer either in writing the Request for Proposal (RFP) to exclude unknown suppliers or when a lower bid is obtained, it is hidden from management so as not to embarrass the buyer from not having the lower price earlier or to protect the buyer from the risk of poor delivery or poor quality. Testing and validating a new supplier is often difficult and time-consuming, which is why it is rarely done.
Sourcing is Creative and Transformative
Sourcing, on the other hand, involves identifying new suppliers, negotiating cost structures, and building supply chains from the ground up. Sourcing requires customization for every item in the bill of materials. Buyers that have full schedules and demands on their time simply do not have the discretionary time to pursue alternatives.
Sourcing, particularly when looking at a new country, also requires challenging the way things have been done historically. An example of this is when a sourcing resource asks a distributor for pricing or to order something from a catalog to determine pricing. Both are expensive ways of obtaining raw materials or component pricing. Distributors typically operate at a 25 to 30% margin, which makes the final product not competitive with a product from China. Distributor catalogs are an even worse source for a component, as the pricing is 10 to 12 times higher than directly from a factory. However, finding these factory sources requires time. If that is the approach towards locating vendors for components, it is unlikely to result in a competitive product cost structure. Each item in the bill of materials must have a unique sourcing strategy.
Identifying a factory is just the first step; building a relationship with the factory, ensuring technical understanding of the product requirements, and competitively bidding with multiple factories is necessary to obtain the most competitive price. During this extended process, ensuring quality, capacity, and delivery capabilities are also necessary. When one of these capabilities is lacking, supplier development is required to ensure a reliable source.
Dedicated Effort Is Required
Effective sourcing cannot be a side project. Buyers with full-time purchasing responsibilities often lack the time or creativity needed to pursue alternatives. Additionally, sourcing requires innovation, technical understanding, and strong negotiating skills—qualities that extend far beyond the repetitive tasks of purchasing.
If sourcing is a critical priority due to a major change in cost from tariffs, such as a 20% or even 55% cost increase, or due to ongoing supply chain disruption, companies must assign dedicated resources and avoid overburdening existing employees.
Mistake #3: Treating Mexican Factories the Same as Chinese Factories
Another common misstep lies in underestimating how unique Mexico’s manufacturing ecosystem is.
Differences in Supply Chain Maturity
Mexico is not fully developed for finished products. Supply chains must be built as Mexican factories are typically intermediate goods producers or parts within a supply chain. Sourcing there requires a thorough understanding of manufacturing processes and building out a supply chain from 5 or 10 vendors, which is well beyond anything that a person who is used to going to a Chinese finished goods manufacturer of related products has done.
For example, in China the factory manager for a finished product will usually have established relationships or will have vertically integrated over the years and be able to rapidly complete the bill of materials. This is relatively easy as the factory manager does most of the work. In the case of another country that has not manufactured that type of product, the factory manager does not have that developed group of supporting suppliers. The supporting suppliers must be identified, qualified, and components or raw materials competitively bid. In short, this is more complex and time consuming than what evolved in China.
Mistake #4: Focusing on Tactics Instead of Strategy
Many businesses falter when they place too much emphasis on short-term tactical goals at the expense of long-term strategic outcomes.
The Cost of Tactical Thinking
There are several costs associated with a product before it reaches the distribution center or factory for conversion into a higher-value good. Many purchasing managers are tactical and evaluated on purchase price only, rather than landed cost. That focus forces them to try to leverage elements of Chinese expenses against the cost structure of a product made in Mexico. By doing this, they may hurt their company’s overall profitability by staying in China at a favorable factory price, but at a much more expensive product, considering logistics and tariffs.
The second tactical mistake is to focus on the one-time cost of engaging an experienced sourcing team to assist in identifying, qualifying, and competitively bidding a product. Of course, the upfront consulting fee is measurable, and the potential benefit of a lower cost product is, at the early stages of the process, unknown. Alternatively, a company may be opposed to using consultants, because they have never had to do so in China. I have seen several situations where a modest one-time fee in the $10 to $50K range is rejected and savings of over $1 million forfeited.
Strategic Thinking Leads to Better Outcomes
Executives must approach nearshoring with a strategic mindset, prioritizing total value rather than upfront savings. This includes investing in supplier vetting, cost modeling, and sourcing expertise to ensure the move to Mexico delivers sustained value.
Mistake #5: Diluting Negotiating Leverage with Mixed Messages
Some companies are trying to reduce risk in the short-term by reducing their dependence upon China over time. They have an approach of tiptoeing towards Mexico. While this may be an acceptable internal strategy, it should not be communicated to the Mexican factory.
How Mexican Factories Interpret Dual-Sourcing
When companies disclose plans to dual-source, Mexican factories often assume two things:
- The company is not fully committed to the relationship, meaning volumes could return to China at any moment.
- Split volumes will limit profitability for the Mexican factory, reducing its motivation to invest resources in the relationship.
Both assumptions weaken the factory’s willingness to offer competitive pricing or prioritize your account. There will be time for transition planning, but it is not in the negotiating process.
The Solution: Clear Commitment
While transition planning is important, discussions about dual-sourcing should happen after the relationship with a Mexican supplier is established—not during the negotiation phase.
Summary
Avoid the mistakes of thinking Spanish speaking or Mexican heritage resources are your best way to source in Mexico. Those have distinct downsides and though nice-to-have, unnecessary. Avoid making tactical decisions and focus on both short-term results and long-term gains.Lastly, and perhaps most important, do not assign the sourcing work or a major change effort to a leader with a full-time operational role. The Tyranny of the Urgent (day-to-day emergencies and tasks) will always crowd out the necessary work to effect major change.
Shoreview Management Advisors: Your Partner in Nearshoring
Re-Sourcing to the US (Re-Shoring) or to Mexico (Near-Shoring) has its difficulties and opportunities and requires dedicated experienced resources. Trying to go it alone, adds significant risk and diminishes the chances of success. Shoreview Management Advisors is of value to both Mexican factories looking north for growth opportunities and for US companies looking for a reliable, cost-effective source of products.
For the last 7 years we have been advising on Nearshoring from China to Mexico, having served many clients well before the Trump Tariffs and trade war with China. Prior to this latest imperative, Shoreview executives have over 25 years of experience in Mexico in manufacturing and sourcing of products as well as on the ground experience in Asia. Shoreview has strategic partners in the logistics arena and highly recommends that a company looking to re-source from China (or Vietnam) engage in a comprehensive review of its US distribution center and logistics operations as well.
If you have tried Mexico previously and been unsuccessful, it is likely to be because of one of the above issues, combined with choosing the wrong partner in Mexico. Re-sourcing requires a significant effort and there are other firms that simply do not have either the experience or expend the effort of identifying, qualifying, and competitively bidding both the final product and the components necessary to build the product. If you’re ready to avoid these common mistakes and ensure your nearshoring success, contact us today.