Mexico’s Nearshoring Boom: Manufacturing, Labor Laws & Economic Trends with Luis Lozano | Nearshore Cafe

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**Brian:** Welcome, everyone, to another episode of the Nearshore Cafe podcast, where we talk about the people and stories doing business in Latin America. If you are interested in Mexico specifically, this is the show for you. We have Luis Lozano, who’s an expert in nearshoring trends, especially economic, all sorts of great stuff we’re going to get into today with Luis. Before we do that, let me thank our sponsor, Plug Technologies. Plug.te. Plug is a great way to connect resources from Latin America to growing U.S. companies. Well, let’s welcome Luis to the show. Luis, how are you?

**Luis:** I’m fine, thank you. Thank you, Brian, for bringing me in. Yeah, I’m great. Excited, very excited to have this conversation. I think we’ve known each other for some time, and I am very happy to be able to join the Nearshore podcast. Yeah, thank you. I think we’re going to have some fun today. Yeah.

**Brian:** So, I’ve got a lot of questions. I know, Luis, you’ve really kept your pulse on the trends for many, many years. You’ve seen nearshoring explode. Today, we’re really going to dive into Mexico, and why don’t we just, why don’t we start off big picture? What have you seen maybe since the pandemic in Mexico? What are some of the biggest newspaper headlines and trends that you’ve seen with nearshoring to Mexico?

**Luis:** Okay, it’s very interesting. I think starting there, because I actually see — and maybe we can talk about that obviously on the call — but yeah, I see there are two specific trends that have been happening in the last four years. The first is after the pandemic. We can start there, and we can go from 2020, when the pandemic hit, to 2022. Then we had another episode of nearshoring in 2022, with war, to 2024, and we are starting to see another chapter. So, it’s very interesting.

So, let me start with the one you mentioned. In the pandemic, what happened is, obviously, we had these three months of uncertainty. Nobody knew what was going to happen. All the world stopped. Any company, every country, didn’t know what to expect. So, we started to pick up after three months, and that’s where we, I think, as humankind, decided, “Let’s go digital, right? Let’s really try to push that this time.” And so, we started to see a lot of trends, not just nearshoring, obviously that’s important, but mostly like, “Let’s work remote, let’s try to make it happen, let’s get a lot of apps on the market so people can really ask for food or for delivery of things.” Travel, and they were pretty hit on that for the next two years. And so, I think what we saw was a trend in the software industry. Let’s focus on that if that’s okay for you, where apps were the hottest things in the market. There were a lot of companies pushing that, a lot of demos, and obviously, we were having a surplus of investment coming from different places to Latin America, obviously, and Mexico specifically, because that’s where we are going to talk today. So, that’s what I can tell you. Really, the app industry, and apps in all industries, but I will say the tech industry per se, were very hot, and everybody was searching for this opportunity to grow their businesses.

**Brian:** Let’s kind of dive into some of the subtopics there because, you know, “nearshoring” is a loaded word. But, you know, there are all these different pieces: there’s manufacturing nearshoring, there’s what I call professional service workers, like you said, software engineering, UI/UX, things like that, accounting. And then there’s maybe more of like the BPO call center type of nearshoring. And I’d love to hear what you’re seeing, especially recently, amongst those three different groupings. Is it volatile? Are they all growing? Are there potential roadblocks? How are you seeing those three?

**Luis:** Yes, so if you asked me these questions in January, I would say we are stagnant, like we are not growing. But right now, everything shows different. We have started to grow again. So, when we started the call, I mentioned three different chapters, and we are in the third chapter for me, based on what I am seeing in the industry. And obviously, BPO and manufacturing are also very important. If that’s okay, let me tell you a little bit about that. So, obviously, BPO has always been a huge thing, like, “Okay, they need call center or technical support guys that can really help the market in the U.S. or Canada,” right? But also, we have manufacturing that I think is taking a second, yeah, second round this time. Because, I think in the ’90s, what happened was that all the companies in the U.S., with the treaty that we had, came to Mexico. Yeah, around the 2000s or so, they started…

**Brian:** You’re talking about NAFTA?

**Luis:** Yes, exactly, exactly. And so, what happened is that everybody came here to Mexico, expanding that. But then, after the crash, I would say in ’08 or so, they started to move to China. Everybody was there, so manufacturing took a hit at that moment. It’s still happening in the frontier between Mexico and the border, between Mexico and the U.S., and I see a resurging right now. You will see a lot of nearshoring, and I think that’s a lot of what is happening. Manufacturing of everything: cars, computers, a lot of stuff that was happening in China, they are moving the factories back to onshore or nearshore, in this case, Mexico. So, that’s the other piece I wanted to mention, that I see as a resurgence of manufacturing in Mexico. So, we will see a lot of new companies coming in.

**Brian:** Yeah, yeah, interesting. Let me take a little detour off of the economics for a second.

**Luis:** Sure.

**Brian:** It’s a political year in the U.S., and that’s also an election year for Mexico too.

**Luis:** Yes, that’s right.

**Brian:** So, maybe, maybe let’s start there. Forgive me if I mispronounce, Obrador is the Mexican president, yeah?

**Luis:** Yes. How have his policies over the last few years, how have they impacted nearshoring? It didn’t. It was, it was better for the country. Because when he took office, everybody thought, “Okay, maybe this is going to go down,” right? Because of the way that his leftism is. But it didn’t. He has done a pretty good job on keeping things good for businesses to come to Mexico, and we have seen that. And even though normally, if you go to the previous elections, you normally see that there is a lot of situation between the exchange rate of the U.S. dollar and the Mexican peso. You will see that every time there is a change in the president, you will see that the U.S. dollar just spiked. It didn’t happen. It’s actually dropping. So, if I can tell you, I think it’s good. He is giving the power and the opportunity for the states and for the government entities to do their job. I think that’s the most important. And so, I just see that as, and everybody is seeing that as, “Okay, it’s a continuous and stable country, so we want to do business there.” So that’s why we are seeing that, and it’s very interesting because it didn’t happen before. Yeah, it’s great. It’s great.

**Brian:** Yeah, stability and just space for businesses to operate. And like you said, less volatility, less uncertainty of, “Are they going to jump in or not? Are they going to over-regulate, under-regulate?” And really, I think businesses in general, it doesn’t matter if you’re in the U.S. or Mexico or wherever, they just want to know what the playing field is going to look like, and then they can run their business, right?

**Luis:** Yes, and yeah, I mean, obviously we are not here to talk about politics. But they see that equally. I mean, it could continue with the same party. I don’t know if they are going to win or not, but if they do, I think that’s what everybody is seeing: there is a high probability of Obrador’s same party to win. And so, it’s the same, right? If we were doing good, yeah, we can continue. I don’t know if it’s going to improve or not, but at least it’s the same. And that’s normally what happens when a U.S. president wins a second term. He’s like, “Okay, he’s the same. I know what to expect.” So, yeah.

**Brian:** With Mexico for a second, and out of my own curiosity, were there any groups that you think were impacted negatively from the last few years?

**Luis:** Yes, there have been some, obviously. I mean, it depends on how it goes for you. But yes, obviously, I think the most impacted were actually — and it’s very interesting that you mentioned — the staffing augmentation companies that were not doing things the right way, to say something. So, they were very hit because there were some changes in the Constitution, so they needed to fix it, or, and many of them were out of business. So, yeah, I will say that the last years have been very hard for outsourcing companies, not just staffing, but outsourcing in general, because that’s one of the key things that Obrador wanted to fix, if you call it that way. And so, it is more restrictive. So, that’s when you say, “Okay, maybe they are going to restrict something.” Yes, they restricted that. It’s not like in the U.S. that you can have a lot of corp-to-corps and all that. It’s not like that anymore. I mean, you can do it, but you need to do it the right way, the way that the government wants right now. But I think everybody that wasn’t following that is already weeded out. So, I think the good companies stood. So, I think it’s even good for Mexico in general to have this law because there were a lot of loopholes in the law. Yeah, they closed that, and I think that’s good. And also, big companies, they are paying more taxes. So, yeah, that’s also good, I think.

**Brian:** Yeah, so, maybe to simplify, do you think right now the economy of Mexico is pro-labor or pro-business?

**Luis:** Yeah, I think it has always been pro-labor. And basically, I will say that not just Mexico, but Latin America, for people that are looking at this from Latin America, is pro-labor. It has always been. But lately, I mean, it’s pro-labor 100%. So, a lot of the tweaks that we have seen are more pro-labor, but that doesn’t mean that it’s a deterrent for investment. I believe that it’s a better playing field, and so it makes it like that, right? Because when you are talking with candidates, they were like, “Oh, I have this scheme, and another person has this scheme,” and maybe you… So, it’s more aligned, I will say. So, I think also it’s good. I think everything that comes to help the labor is going to be beneficial for everybody in the long term. That’s my take.

**Brian:** Yeah, and I also wanted to ask you, and, you know, the audience that listens to this is curious. They just want to learn more about how stuff works. You know, Latin America has many different countries, many different nuances. How contractors, employees, entities, how all this stuff works. And sometimes Mexico can feel a little intimidating for a new business trying to figure out, “Can I contract this person? Do I need to have an entity? Do I need to pay them in pesos?” And if I’m labor, “Can I work directly as a contractor? Do I have to, do I lose my pension and all the benefits of being connected to the labor force?” I know that’s a kind of a big question, but the more you can kind of share what does that look like, it would be fantastic.

**Luis:** Okay, so what I’m going to do, if that’s okay for you, I am going to take the U.S. as an example, because I think a lot of the audience is going to at least know how that works. And it’s different from country to country. So, normally in the U.S., you will have either payroll or contractor, or obviously corp-to-corp, right? That’s like the three. Obviously, there are a lot of other options, and we are not talking about how you pay taxes yet. It’s like, “Okay, how can I hire somebody to work with me?” In Mexico, we have the same things, but we have different options. So, that’s where the confusion begins, right? And being pro-labor, there are different things that you need to consider when you hire somebody. So, for instance, you can also have payroll, right? And you need an entity in Mexico. Obviously, I think the majority of U.S. companies don’t take into account that in the U.S. you can open a company very quickly, like within a month or less. In Mexico, it takes six months to eight months to open, and that’s if you get your name approved, right? I have this fun story that we were building a company, and it took 22 names to get approved, so it took us like six months just to get approved. So, that’s just to start the process, and then you need six months or eight months, and then you need to be in Mexico to be able to open. So, there are a lot of things that you need to consider. If you want to hire as payroll, you want the easiest way, I will say, because maybe that’s going to be interesting for the audience, right? So, the easiest way is to go contractor, International Contractor. I think is the best way to do it, and that not just helps. I mean, that way works in Mexico or in every other country. Now, Mexico has a preference, or let’s say doesn’t have a preference where you get the money, as long as you pay taxes. Okay? So, if you are in the U.S. and you pay somebody in Mexico as a contractor, there is a way to pay only 2% in taxes for the person that is receiving that money. Whereas, if you go to Colombia, for instance, you need to pay 30 or 40% for that. So, it’s really different, and that happened within this administration. So, that just came in. Before, you didn’t need to pay anything, but right now, you pay only 2%, and then it’s like, “Okay, you are on the law, you are making everything fine.” So, payroll, you need a company in Mexico. For a contractor, you don’t need a company in Mexico. You can hire them from your U.S. company. And yeah, so when it comes — and maybe, I mean, I don’t think we will have time for that — but you also need to consider termination fees, right? Totally different. You need also to consider if you are going to send the computer or some equipment, because you have these taxes when you send equipment from the U.S. to Mexico. I have seen it all. So, I think there are a lot of things. The easier way is to go contractor, and meanwhile you do that, you may want to realize, “Okay, maybe I want an office in Mexico,” and then you will need to build your company. But it’s going to take a year. It’s not going to be easy.

**Brian:** Yeah, yeah, yeah. Thank you for explaining that in a way that someone from the U.S. might look at that. So, while we’re talking about the U.S. and politics, like we know, it’s an election year in the U.S. as well. How does…? So, you know, we in the U.S. in the media, we always hear about immigration and the wall, but nearshoring isn’t that, right? Nearshoring doesn’t really have a lot to do with immigration. So, I’m curious, what do you think this election year in the U.S. means for nearshoring? Are there policies that people in Mexico are listening for, or things that different candidates or parties are talking about that would have an impact on nearshoring in Mexico?

**Luis:** It’s a good question, but in this case, I will say that — I don’t know, maybe I’m not correct in this — but my belief is that it will impact. Actually, I think it’s going to improve nearshoring. Let me tell you why. Because, regardless of who ends up in office in the U.S., I mean, obviously they need to say, “Yeah, it’s the wall,” and “Yes, immigration,” but that’s not really the problem. The problem is Ukraine and Russia, so they will continue to work on that, continue with the trade war with China. And that only helps, because if they are having issues with China, somebody needs to put the factory somewhere, as I mentioned before. You cannot put them in Russia or Ukraine as before, right? You cannot do it, so you need to bring it closer to home. So, I will say that it will impact the U.S. if they decide to bring more, or continue with this trade war with China. It’s going to impact us directly to get more labor or more employment. And it will also impact positively in Mexico. So, I don’t see… again, I think the next six years, because it’s a term for Mexican presidents, you know, in the U.S. it’s four. But I think at least for the rest of the decade, we are going to see nearshoring just getting stronger. That’s my prediction. At least, I hope I am right. But yeah, I see that. I just see that happening because it’s the right thing to do. Everything points toward that. So, yeah, I don’t think it’s going to impact negatively more than, “Yeah, they need votes, and they need to say whatever they need to say to get the person to go vote for them.” But I really don’t believe that they are going to get into the war like they did, for instance, Trump, who was in this war with Mexico at the beginning of the administration. I don’t think it’s going to happen regardless of who they want. But again, I can be wrong, but I don’t think it’s going to impact negatively.

**Brian:** Yeah, I want to go back, Luis, to earlier. We hit on currency just a little bit, on how the dollar is tracking. Could you talk a little more about that, the peso versus the dollar? What it looks like today, how people are maybe forecasting that, and really, what does that mean for everybody? If the dollar gets weaker, the dollar gets stronger, what does that mean for companies that are trying to nearshore?

**Luis:** Yes, I… every month I send a Mexico tech update, and I actually talk about that because I think it was the right time to do it. From the top of the market, if we talk about the U.S. dollar and Mexican peso, the U.S. dollar was trading at about 25 pesos per dollar. Right now, it’s around 16, so 30% less. So, that really impacts because most of the budgets are in U.S. dollars, not in Mexican pesos. So, if a company is coming and they plan for five years, just imagine somebody in 2019 that they planned the next five years, right? And they just realize after one or two years that their purchasing power is not just reduced because — and maybe I will get a little bit technical here — but you have two ways in which you reduce your purchasing power if I am a company in the U.S. coming to Mexico, right? So, one is obviously inflation. Inflation happens in every country, and it hits us every year with a percentage, right? So, my purchasing power is lower. But another thing that is happening is because the Mexican peso is gaining terrain against the dollar, obviously, my dollars are worth less. So, it’s a double, double dip on my purchasing power. And so, I think what most of… I will talk now about Mexican candidates, right? Because I think we need to be more aware that this is going to impact the salaries for sure. It has been a situation where U.S. companies have been adapting and adapting and adapting, like, “Okay, maybe I was able to hire a software engineer for $4,000; now I need $5,000.” That’s okay. When are we going to stop? I think it’s going to stop very soon. So, I think that’s where Mexico is going to get a halt, right? Like, “Oh, we were making a lot of money, that’s great, and we can make more because there is more money.” Right? So, I think it’s going to happen soon. That’s going to happen soon. And talking about prediction, I think during this year we won’t see a rise. And actually, if this trend continues, it should be a salary reduction of the offers, right? So, that’s something that hasn’t happened since I started 15 years ago. But I see that it will, it could happen. Just imagine that we have 15 pesos per dollar; 50 pesos per dollar is a lot. You already lost a lot of your purchasing power. And inflation again is very high. And so, I don’t know, it’s interesting. But another thing that I think is important to mention is that that’s what we wanted. That’s exactly what we wanted as Mexico when we signed the NAFTA agreement. It already changed and everything, but when we signed that, we wanted to be an equal to the U.S. and Canada. I mean, I think the dream is closer. We are not there yet, obviously, but you can see that the gaps start to reduce between very special people working in Mexico to the U.S. or to Canada. I mean, you have people right now that are paying more than people in the U.S. It’s incredible. And with the same, same level, just because they… I mean, right now companies don’t care much about that, like, “Okay, I need the best people, and I want to hire them.” So, I think it’s a very interesting fact. Obviously, I’m not talking about FAANG and all these big companies that pay a lot of money, right? But in general. So, I think for me, it’s very, very exciting to see it coming to fruition, right? Because I see a good trend where we are going to be more on par, and it has its consequences, obviously. But in other instances, our purchasing power in Mexico could be the same or a little bit lower. But if we go, for instance, overseas, we will be able to pay for more things or travel or everything. So, I think it’s great. I think you need to, I mean, you need to sacrifice somewhere, right? So, I think, I don’t know, I believe it’s a very interesting moment right now for Mexico.

**Brian:** Yeah, and I think overall, what the U.S. should understand is that a strong Mexico is actually good for the U.S. Like you talked about, especially it gives an alternative to China from a manufacturing side. It opens up the doors for a larger labor pool. All businesses want a larger talent pool to draw from. So, I think it’s great. I think it’s really good for overall supply and demand economics too.

**Luis:** Yes, and now that you mentioned that, I think another important thing to mention is that there is still going to be a lot of savings as well to come into nearshoring. Because maybe the top talent, like the senior people management, is going to be very similar. Maybe you will even pay similar salaries to the U.S. But when it comes to labor that doesn’t speak English, that’s where the saving is. You will be able to have a top management scheme where you have this management team, and that can speak English pretty well, well paid. And that has happened since the beginning of this trade, right? But I think right now it’s showing a little bit more, like getting even closer in the payments. But when you go and say, “Okay, I need 1,000 employees,” yeah, for sure you’re going to save money in Mexico. That’s for sure, and not just 30 or 20%, maybe 60 or 70%.

**Brian:** Yeah, totally. Absolutely, absolutely. Well, as we start to wind down the show, I’ve got a couple fun questions for you, Luis.

**Luis:** Sure.

**Brian:** So, Monterrey is a city that a lot of people are surprised with how amazing it is. For someone who’s traveling to Monterrey for the first time, do you have any travel tips? Where to eat, what to see, what to do?

**Luis:** The first thing that you need to understand is how big the city is, right? That’s the first thing. And so, if you want to party, you have options. If you want to go to small towns, you have options. If you want to go with nature, you also have options, right? And I think that’s where people normally don’t know, and that’s okay because you can do it all. Obviously, for instance, if you want to go for some nature again, if you like nature, there is a lot of travel that you can do. Eco-tours are also a pretty good thing. And depending on how extreme you like it, you can be climbing mountains, going to rivers, stuff like that, very fun stuff. Camping is also, I mean, we are between mountains, so I think it’s also pretty good to just walk to the top of, to the summit of the mountain. I think also pretty, pretty good. But also, we have different small cities close by that you can go. Again, if you like to eat, there are a lot of things to eat here, a lot of cuisines, right? We have, if you like to party, there’s a lot to do in the night as well. So, yeah, I think the only thing that we don’t have is a beach, importantly. But everything else, I think, you have a place to go. And actually, also shopping, I mean, if you like shopping, there are a lot of pretty good companies and stores here where you can buy stuff. You can buy almost anything you need. So, yeah, I will say that in terms of food, obviously, cabrito, you need to try it. Not everybody likes it. Don’t worry about the smell, just taste it. It’s a strong smell, but it’s good. I really like it. And obviously, beef arrachera is amazing. I mean, I have been in other cities, fortunately, and I think I will rank Hermosillo first and then Monterrey in food. Probably I will get ripped by that, but yeah, it’s good. I think it’s amazing. It’s an amazing place. I have been living here my whole life, but I have traveled and stayed more than three months, but living in different cities in the U.S. and also Mexico, and I always came back. So, yeah, I don’t know, I really like the city.

**Brian:** Amazing. And the last question I have for you, Luis, as someone who speaks both Spanish and English very, very well, do you have a favorite English word or English phrase?

**Luis:** Well, yes, I mean, I am thinking. I think one that I like, let’s talk about business, and then I can talk about fun, right? So, in business, I will say, “Make it happen.” And that’s something that my dad always told us. And just before we started, I was thinking like, he was also on the nearshoring side, but in the manufacturing stuff. So, I mean, we were doing the same thing, right, 20 years apart. But yeah, I think “make it happen.” And I will say, on the fun side, for all the Star Wars fans, “Hello there” from Kenobi. I think that’s the one that I use the most for memes and all stuff. Yes.

**Brian:** That’s great. That’s great. I love it. Well, you heard it here from Luis Lozano. And wow, we really hit on a lot of interesting geopolitical, economic topics. I learned a lot. I know our audience did too. So, thank you, Luis, for coming on the podcast.

**Luis:** Thank you, Brian. Thank you, thank you, everybody. Yes, I am here to help if you need anything.

**Brian:** Luis, where can people find you if they want to reach out to you?

**Luis:** Yeah, I think my LinkedIn profile. I am very active on there. If we can share that link there. And actually, I think I have my phone number, my business phone number, there as well. So, yeah, WhatsApp or LinkedIn is the best way.

**Brian:** Cool, you got it. Well, everyone, thank you again for listening to another episode of the Nearshore Cafe podcast. This podcast is sponsored by Plug Technologies, Plug.te. Plug is a great way to connect resources from Latin America with growing U.S. companies. We’ll see you next time. Thanks again for listening.