Intellectual property is one of the most important resources for any manufacturer. Although the protection of IP is important for ensuring that competitors do not gain access to confidential industry information and manufacturing processes, it also plays a major role in protecting the integrity of a company’s brand from counterfeit goods. Counterfeiting damages a company’s brand in two different ways. First, it siphons off demand for the company’s actual products by supplying some consumers with goods not from the company, eating into market share without providing any actual revenue to the company itself. Counterfeit goods also can hurt a brand’s image, as these goods are often of poorer quality. One of the biggest hazards of working in distant countries such as China is its rampant counterfeit industry, which is often at least implicitly tolerated by the government.
Because it can be so difficult to combat illegitimate goods in China, many companies benefit from nearshoring by keeping their manufacturing closer to home in countries with better intellectual property protection laws, such as Mexico. As a member of the North American Free Trade Association (NAFTA), Mexico follows the guidelines established by the first international trade agreement that has obligations regarding the protection of intellectual property. The drafters of NAFTA realized that IP enforcement is a critical part of the principles of market access and non-discrimination. If one country does not take steps to protect the intellectual property of its trading partners, trade is negatively impacted. Part of what makes NAFTA’s position on intellectual property so effective is its three-pronged approach. First, all members of NAFTA have established minimum standards for intellectual property protection that they must meet. Secondly, NAFTA requires enforcement of these standards at the borders of NAFTA states, which is where much of the damage due to counterfeiting is done. Finally, NAFTA has a dispute-settlement program that penalizes countries that do not take adequate steps against intellectual property infringements.
Overall, Mexico’s participation in NAFTA is a major selling point for companies looking to move their manufacturing out of the United States but do not want to have major problems with counterfeit goods. Manufacturing in Mexico has a long-standing reputation as a protector of intellectual property rights that allow businesses to work there without having to worry about potentially catastrophic supply chain breakdowns, allowing them to maintain stability throughout their supply base by working with reputable and regulated manufacturers.