US Construction Enterprises Look to LATAM: “Nearshoring” & Our Investment in Latii
China has been the world’s leading manufacturer for decades. The country’s rise to an international manufacturing powerhouse started in the 1970s, driven by several governmental reforms that intentionally enticed foreign trade and investment. These policies, coupled with China’s massive and cheap labor force, made it an incredibly attractive destination for foreign company production.
In the last few years, however, China’s manufacturing monopoly has started to ease. Many US corporations are exploring manufacturing closer to home — a trend referred to as “nearshoring” or “reshoring”. In light of this shift, we’re thrilled to announce our investment in Latii — a supply chain platform enabling US construction enterprises to source from Mexico and Latin America more broadly. (Latii joins Finkargo and other recent Flybridge and Deco investments to support LATAM nearshoring trends.)
“Nearshoring/Reshoring” Context:
There are several reasons US corporations are pushing to move manufacturing closer to home. Some of the major motivators include:
First, labor costs. China’s manufacturing labor costs have risen substantially over the last decade — increasing ~37% from 2010 to 2021. Manufacturing labor in China is currently at an estimated ~$6/hour, as compared to Mexico’s $4.50/hour. (Importantly, China’s labor costs are projected to continue increasing at a much faster rate than those in LATAM).
Second, labor availability. China’s population is declining for the first time in six decades, and younger workers are attaining higher skill and education levels — both contributing to lower availability of manufacturing labor. Mexico’s labor force, in contrast, has doubled to ~58M since 1990, and ~25% of workers are employed in manufacturing related roles.
Third, physical proximity. Manufacturing products closer to home means cheaper, faster, and possibly more accurate production. Shipping a 40-foot container from China to the US is estimated to cost ~$7,000+ and take 30–40 days, as compared to ~$2,800 and 3–4 days from Mexico. Covid-19 supply chain disruptions illuminated the dangers of being fully reliant on ocean freight — cargo ships waited weeks for port access. While there are only a few major crossing points between the US and Mexico presently, the border is over a thousand miles long, offering ample opportunities for cross-border transportation. Additionally, in the event of production errors, catching, correcting, and quickly amending issues is much easier with physical proximity.
Fourth, diversification, especially in light of recent global and political tensions. The war in Ukraine, Covid-19, Trump’s administration, among other events, highlighted the risk of being entirely reliant on one country or region for production. US corporations are increasingly prioritizing sustainable and reliable value chains, as opposed to simply optimizing for low costs.
Fifth, trade agreements. Mexico has 13 free trade agreements with 50+ countries, making it an extremely open and accessible partner for international trade. The US-China relationship, in contrast, has suffered recently due to tariff battles and a whole host of other geopolitical issues and tensions.
Nearshoring x Construction:
While nearshoring has clear benefits for all industries, there are several aspects of the construction sector that make moving production “closer to home” especially appealing. To name a few:
First, the construction industry as a whole remains highly paper based, fragmented, and relationship driven. Time zones, language barriers, massive physical distances, etc. add complexities to an already opaque industry.
Second, time is (big) money in construction. Delays can add an additional ~30% to a project’s original cost.
Third, many LATAM manufacturers have excess capacity. Increasing access to construction materials, and condensing delivery times, has massively positive implications for the US, which can’t keep up with building demand. Last year, the US was short an estimated 3M+ homes.
Enter Latii:
In light of all the above, we couldn’t be more excited to back Latii — building an end-to-end platform for LATAM construction procurement — from Deco Ventures, Flybridge’s new early stage network fund focused on the built world. The company’s founders Santi and Alejandro both previously worked at Tul — a Colombian-based construction ecommerce platform — and intimately understand this market and problem.
Beyond aggregating supply and optimizing procurement options, Latii’s platform offers a range of “white glove” benefits for US construction companies — ranging from quality assurance to detailed delivery and timeline visibility.
We can’t wait to see this team and company take off, and a huge thanks to Adam at Foundamental for the intro!
