The boom of the recent nearshoring in LATAM: New opportunities ahead

Why nearshoring is becoming popular in LATAM

In our last article about Latin America, Biosimilars in LATAM, we mentioned the importance of geographic coverage. In this article, we will look at geographic coverage and the inherent resources of the area, which are vital factors for pharmaceutical companies and their nearshoring strategies.

Recently, the region has been gaining popularity among successful companies looking to expand their operations, and nearshoring looks like a winning option.

Nearshoring can be seen as an industrial strategy where manufacturing sites are relocated, and operation offices are located in nearby countries of the final consumers.

Advantages of nearshoring in LATAM

Some of the advantages of nearshoring  in LATAM includes:

• Lowering costs (Compared to other countries such as India or China)
• Work the whole process in the same time zone (As LATAM has the same time zones as the USA)
• Highly skilled labor (Due to the continuous investment in education. You can find the best talents at a lower cost than you would pay in the USA)
• Proximity to the USA (Which Mexico is their No. 1 business partner)
• Access to new markets (Especially for companies that are looking to expand their current customer base)

Which industries are currently taking advantage of the nearshoring?

An emerging global trend we have seen from the mid-90s to the present is that advanced technology companies set the example for expanding markets and manufacturing. For example, you may remember when it was announced in the news that Telsa had selected Mexico as their home for their new manufacturing site. This is not a surprise if we consider that, for example, a Telsa takes 4-6 weeks to arrive from China to The USA (in the best case). On the other hand, a Telsa is expected to arrive from Mexico to The USA in 2-4 days. Telsa is not the only manufacturer that has started moving its production plants. The list includes BMW (Automobile), Boeing, Airbus (Aerospace), Ternium (Metallurgy),  Man Wah (furniture), and Cenntro Automotive (Batteries). Though not entirely new for pharma companies, we see that more are following suit in this nearshoring trend.

The pharmaceutical industry in nearshoring

It is not a secret that The USA is one of the biggest markets in the world with significant spending power, and all companies try to capitalize on these facts. In search of a mutual benefit, global Ministries of Health (MoH) have begun strengthening ties with the FDA and the National Agency of the USA. An example of this is the several meetings the FDA held with COFEPRIS (The MoH from Mexico) to strengthen their collaboration, and that collaboration is represented by, for example, the presence of 8 different manufacturer clusters of Medical Devices in Baja California (Mexico), representing 60 different companies, where their principal market is the USA.

But the production of medicines has also been impulse:

Proof of this is the 6 new agreements signed with Asian manufacturers to create a new cluster of generic drugs.

A change in local regulations is a must to enhance the effects of the nearshoring. New policies are being created for new health legislation, where the objectives include providing regulatory certainty, facilitating access to new medical supplies, and protecting patients from health risks.

Which LATAM countries benefit most from this effect?

According to the Inter-American Development Bank (BID), the nearshoring may increase the global exportations of LATAM and the Caribbean by USD 78 billion annually, with some clear winners and vital countries:

• Mexico, as the investment magnet: Arguably the most benefited country, where the objective is clear: Bring assets to the country, have the highest capacity and the greater production capacity.
• Brazil, as a country with a hidden potency: This is the opportunity to include Brazil in the global manufacturing chains. Not to mention that Brazil represents a market of 214 million people.
• Uruguay, a country with open policies: Uruguay has an interesting cover letter about social, political, and economic stability.
• Argentina, a break to the crisis: it is impossible to forget that at the end of the last century, Argentina was one of the biggest economies in LATAM. With a change of government and searching for foreign investors, new policies are being created to achieve financial objectives.
• Other countries, such as Colombia, Chile, Costa Rica, or the Dominican Republic, are listed by the BID in their projections for next year.

The future of nearshoring for pharmaceutical companies in LATAM

Nearshoring is not a new concept, but recently, it obtained more relevance in different industries. The objectives are clear: Time reduction, saving costs, and optimizing the manufacturing and supply chains.

The different governments in LATAM know this phenomenon and have been doing their part since 2021. This 2024 can be the year you and your company expand to new business lines, new markets, or events that go deeper into your current market, and at PLG, we are open to helping you achieve your 2024 commercial objectives, where the LATAM region will surely be a pivotal point to attain and exceed expectations.