Nearshoring in Hermosillo: Analysis of Economic Growth Opportunities

This is one of four Growth Lab reports that aim to identify promising growth opportunities for Hermosillo. The focus of this report is nearshoring. Nearshoring is not a new phenomenon in Mexico, but recent changes in U.S. policy aimed to incentivize nearshoring of critical industries. This report first explores current realities of nearshoring and friendshoring in recent years, based on global trade and the distance which U.S. imports are traveling, and Mexico’s dynamics in global trade and investment in comparison to other countries. The report then evaluates the economic growth opportunities that nearshoring could incentivize in Hermosillo. We analyze the nearshoring opportunity set for Hermosillo across products and industries and if they are based on the city’s productive capabilities. This report confirms that nearshoring and friendshoring have been taking place in global trade and investment in response to U.S. policy between 2017 and 2023. Mexico has made gains in its exports to the U.S. market in recent years as exports from China have lost ground, but it is not the only country doing so. A few countries like Vietnam benefited even more, despite being geographically far from the U.S. market. Mexico is seeing growth in products it has traditionally exported, but it is not seeing much diversification into products that the U.S. has deemed critical. Nor is Mexico seeing promising investment trends that would signal an acceleration of growth in these opportunities. Given Hermosillo’s position as a large city that is near the U.S. market, and to a growing market in Arizona in particular, the process of nearshoring represents a potentially transformational chance to jumpstart growth in attractive industries to better position the local economy for the future. This report provides analysis to begin to identify the most promising nearshoring opportunities for Hermosillo, but local action is needed to build on these initial observations. We identify products and industries that are attractive opportunities for nearshoring in Hermosillo and we evaluate which industries are most consistent with Hermosillo’s existing industry structure and underlying productive capabilities. Promising opportunities stand out in industries related to medical equipment, electronics, machinery, and plastics and the latter sections of this report explore these opportunities in some detail, both quantitatively and more qualitatively. Local strategies to capitalize on these opportunities will vary in design and local actors should weigh the criteria provided and other considerations when deciding which industries are the highest priority for targeted investment promotion and other action steps. One exception, however, is in the value chain for semiconductors, where the emerging opportunity to supply and complement the value chain that is forming in Arizona is too large to pass up. Semiconductors represent an essential area that policymakers and the business community in Hermosillo should embrace, along with a set of additional promising nearshoring opportunities.