After years of chasing low labor costs from one Asian country to another, some U.S. manufacturers are returning to North America as the industry looks to shorten supply chains and lower the cost of the goods sold here.
The so-called near-shoring trend, which is concentrated along the U.S.-Mexico border, is limited in scope — and in no ways represents a reversal of the offshoring trend that has dominated U.S. manufacturing over the past few decades.
But it is providing some good news for residents along the 2,000-mile (3,200-km) U.S.-Mexico border, where violence associated with drug and human trafficking has claimed more than 20,000 lives over the past five years.
It is also providing a welcome boost to the hard-hit U.S. truck-making industry, which is seeing a pickup in demand from Mexican freight carriers beefing up their fleets to handle the increased flow of supplies and finished goods.
"Mexico has become the No. 1 option for manufacturing in North America," said Gilberto Salinas, an official with the economic development office in Brownsville, Texas, which works with neighboring Matamoros, Mexico, to attract and retain companies in the region.
Bill Diehl, the president and chief executive of BBK, a Detroit-based advisory firm with a big industrial practice, agrees. He says Mexico is enjoying a "resurgence" with manufacturers looking to service the North American market and has worked with several clients recently to move operations there.
But Diehl cautions that what is happening today is a far cry from the wholesale flight south of the border that followed the implementation of the North American Free Trade Agreement in 1994.
And he says the violence along the border, as well as immigration tensions, are giving some producers pause.
"People are being much more selective in saying, 'What product can I move to Mexico ... and really make it worthwhile on an economic basis?"' he said.
"Versus just saying, 'I am going to send everything to Mexico.' Because what they found is that doesn't work."
What's more, the trend seems to be largely concentrated among smaller companies that supply larger industrial customers, including the big automakers.
Those big companies meanwhile, including Caterpillar Inc , the world's largest maker of construction and mining equipment, continue to move production of high-volume, price-sensitive products away from United States to get closer to their overseas customers, reduce currency risks and avoid running afoul of trade barriers that might penalize U.S.-made goods.
As a result, experts and executives say the near-shoring trend is unlikely to reverse the decades-old decline in U.S. manufacturing employment. Indeed, David Farr, the chief executive of Emerson Electric Co, recently called such hopes "wishful thinking."
The caveats aside, Salinas, who says Brownsville lost 20,000 jobs in recent years as manufacturers moved operations to Asia, is relieved the region is no longer playing defense.
"We're getting inquiries again from companies that left," he said. "They're not saying they've learned their lesson. But they are saying they want to revisit the border. Time of delivery is important. Oil prices are important. And labor in Asia is no longer as cheap as it once was."
Mexico's attraction is more than geographic. The country's northern border was transformed into a locus of manufacturing and assembly in the final decades of the 20th century by, first, the Mexican government's Border Industrialization Program of the 1960s and 1970s, and, second, by NAFTA.
But the rise of competition from countries with even lower wages, especially China, hit the region hard, and many of the textile and consumer electronics companies that relocated there from the United States decamped to Asia.
"The Chinese came in and just cherry-picked — not just us but all along the U.S.-Mexico border," Salinas said. "We took a significant hit."
Now that process seems to be reversing. Among the companies that have moved to the Brownsville-Matamoros area in the last two years, according to Salinas: the Shaw Group Inc, Tyco International and German toolmaker Hilti.
"We're doing good," Salinas said. "And good is OK during these times."
It is not just border communities like Brownsville and Matamoros that are benefiting from the trend.
ACT Research, which tracks the commercial vehicle market, is predicting a strong rebound in for truck makers, which saw demand drop sharply as a result of the recession.
ACT expects production of so-called Class 8 trucks, the biggest of the big rigs, will more than double between now and 2012 — because of strong demand from Mexico, where the manufacturing expansion is lifting freight volumes.
Not all of that is coming from U.S. manufacturers that have returned to Mexico — but some of it is. Either way, it's good news for the world's big makers of commercial trucks, including Navistar International Corp, Paccar Inc, Volvo and Daimler AG.
Still, experts say Mexico could be attracting even more manufacturers back to the border region if it did not have a major — and widely publicized — public safety problem on its hands.
Northern Mexico is one of the principal corridors for both human and drug smuggling — and violence associated with both has claimed the lives of some 23,000 people since 2006, including an American consulate worker and her husband in March in Ciudad Juarez, just across the border from El Paso, Texas.
"Now, I think Mexico would be doing a lot better if they could deal with the security issues that they are having," Diehl said.