During the week, Tesla confirmed their new gigafactory in the Monterrey Metro area, the second biggest city in Mexico. The company will expand its operation to a third city outside the US (after Berlin and Shanghai) and produce new car models with a different cost structure allowing the company to maximize revenue and enabling a competitive job market.
Nearshoring: A growing trend
Tesla’s decision is part of the growing trend pushed by companies already operating in nearshore markets. References like HEB (one of the largest private companies in the US) and Arca Continental (producers of Topo Chico and the “Mexican Coke”) are great pointers of the advantage Tesla will be making out of this new plan — both companies have been operating between Texas and Mexico for the last years, creating not only new jobs, but also a new set of products by and for their cross-border market.
Multiple brands have demonstrated smart cost optimization, allowing their businesses to expand and maintain (or even increase) high-quality service with talented professionals across the region. Some of the strong advantages we can see from similar cases:
- Diversifying their product and services portfolio
- Positioning in a cross-border region to use economies of scale
- Exploring the expansion of their business and market share
But, what does nearshore really mean?
Nearshore (ˈnɪəˌʃɔː): Having business processes in a nearby country, often sharing a border with the target country.
There are several benefits of exploring strategies with foreign countries in a shared shore location:
- Natural proximity of being neighbors (distance + timezone)
- Historical cultural affinity
- Economies of scale and economies of speed
- Binational markets both from the customer and talent perspective
- Bilingual and diverse workforce
Particularly, the fact of many companies operating between Texas and Mexico is a particular pattern not uncommon for the last decades, and I like to call it the Tex-Mex unfair advantage 🌮.
With many more challenges emerging in supply chains after the beginning of the COVID-19 pandemic, and the current political environment among the US and other regions, Latin America has become of greater attention to the Western economic leader, fostering more business relations across the continent beyond bringing good avocados.
Leap of Innovation in the region
While this is not the best business case for a country with people starving for opportunities, this is a huge step toward building the roads for innovation and enabling new value creation.
Tesla’s gigafactory will open thousands of new operational jobs, but also strategic ones in coordination with factories worldwide, particularly, those in the US. The possibility to absorb best practices and understand what is required to build corporations like Tesla is going to be invaluable for all employees, strategic vendors, and partners all over the country involved in Tesla’s operation. Even more, the possibility of understanding gaps in fast-growing corporations like Tesla will inspire and create a new generation of professionals willing to take risks and solve those problems.
The lack of capital to fund hyper-innovative solutions in LatAm is still a big issue. For the last decade, new funds have emerged, but those are not enough to fulfill the financial needs of newly created startups and entrepreneurs trying to build state-of-the-art projects. Still, there’s a considerable percentage of new startups trying to mimic or replicate what is happening in first-world economies as the “X for Y in LatAm”, definitely being in the trenches and operating for the top companies around the world from the Mexican corner, will enable future opportunities in terms of investment and visibility for the region.
Think about India, with previous investments like Google, Microsoft, and others. 20 years ago it was purely a cost center, but they empowered talented professionals that lead and create the companies of today. Those credentials, experience, and networks they transferred, allowed them to become a new generation of Indians, solving many of the local problems with a global mindset.
Introducing a successful project thesis from the outside to markets with both different cultures and idiosyncrasies is not trivial. This required a balanced team with people understanding how the model works and how it will fit into the context of the new market. Sometimes market, vendors, or even value proposition, needs to change or wait for the right timing to thrive.
Nevertheless, I can’t wait to see a new generation of inspired professionals growing with the challenges these companies will bring, more international companies realizing the potential of emerging economic regions, more investors pouring money into talent regardless of their location, and a new wave of technological innovation that will be created by the local talent encouraged by these big players.
As a former Regio myself, I know firsthand that Monterrey is an encouraging place to start and grow a business in Latin America. The city’s energy, hospitality, and hardworking environment will get stronger with the arrival of more big players like Tesla.
There’s a new era of growth and opportunity in Mexico. And I, for one, can’t wait to see what the future holds.