This is Part 2 of the series, The Hidden Cost of Supply Chain Diversification. Read Part 1 here.

In the spring of 2025, a mid-market manufacturer operating under Mexico's Industria Manufacturera, Maquiladora y de Servicios de Exportación (IMMEX) programme, the bonded manufacturing framework underpinning much of the country's nearshoring proposition, applied for a value-added tax (VAT) refund. It was rejected. The firm reapplied. It was rejected again. For a firm of that size, the amount sitting in refund limbo was working capital meant to fund the next phase of production expansion.

The firm hadn't done anything clearly wrong. It had been caught in an enforcement tightening Mexico's National Customs Agency (ANAM) had been signalling since late 2024, one that had begun to bite across the mid-market in ways the nearshoring story hadn't prepared anyone for. Research from the Center for Strategic and International Studies (CSIS), published February 2026, found this was no isolated case: 70 percent of mid-market firms surveyed reported VAT refund requests delayed sporadically or repeatedly, whether through outright rejection, extended review, or audit, with capital that could have funded expansion sitting frozen instead.1

The first article in this series established the compliance asymmetry between large and mid-market firms. It is a capital problem as much as a cost problem. The cost side is structural: fixed compliance obligations eat a larger share of a smaller firm's budget, and that disproportion doesn't correct itself as the regulatory environment gets more demanding. The capital side is operational: when compliance fails, money freezes. Refunds stall, penalties land, and working capital earmarked for growth sits idle while an enforcement process runs its course. The two problems reinforce each other, and the gap they produce widens the longer it goes unaddressed.

The same three geographies show that combination at three stages of one pattern.

What Vietnam looks like today is, on the current trajectory, roughly what Mexico will look like in two to three years, and what Morocco will look like in five.

Vietnam: The Evidentiary Burden of a Successful Story

Vietnam's total disbursed foreign direct investment (FDI) reached $25.35 billion in 2024, the highest level ever recorded, according to the General Statistics Office. 2 Bac Ninh province led the country in investment attraction that year, drawing more than $5 billion, driven mainly by high-tech and electronics manufacturing, including facilities for Samsung, Amkor Technology, and Goertek.3 By most headline measures, Vietnam's emergence as a manufacturing hub is genuine.

The firms that anchored that story arrived with compliance infrastructure already in place. The mid-market manufacturers who followed them into the same geography didn't.

Vietnam's logistics data, as the first article discussed, tells a consistent story: customs efficiency and infrastructure quality both score below the country's overall index position, a picture the World Bank's 2025 index redesign reinforces rather than revises. What matters most here is how unpredictable clearance is, rather than how long it takes on average. For firms without safety stock to buffer against delays, that unpredictability feeds straight into landed-cost uncertainty.

The pattern is a familiar one. Where formal institutions exist but enforcement is inconsistent, and regulatory change outpaces institutional capacity, the firms with resources to monitor and adapt come out ahead. Vietnam's customs authority has been actively reforming its processes, but the pace of reform hasn't matched the pace of investment. That gap is itself a source of competitive differentiation.

Vietnam runs a Priority Customs Treatment programme that streamlines clearance for companies with strong compliance records. It is a sound policy tool, and one most accessible to firms that already have the infrastructure to qualify. EY's Vietnam practice notes a sharply increased focus on risk-based audits, with real financial penalties and loss of preferential eligibility for non-compliance.4 For firms relying on preferential tariff treatment under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) or the European Union (EU)-Vietnam Free Trade Agreement (EVFTA), documentation is what makes the sourcing decision hold together financially. Get it wrong, and the tariff benefit disappears.

The manufacturers building durable positions in Vietnam share a pattern: documentation systems that generate origin evidence as a natural output of normal production, rather than a retrospective scramble triggered by an audit. That is a decision, made early, and the firms that made it operate on a fundamentally different cost basis for every shipment. Late entrants face three costs at once: building the infrastructure, compressing the learning curve, and absorbing the risk of the catch-up period. Vietnam's compliance environment may already be functioning as a barrier to less-prepared competitors.

As firms reassess transit options following disruption to major Middle Eastern maritime corridors, some are routing goods from Vietnamese hubs through new overland corridors, each with its own documentation requirements and clearance patterns.5 A firm with internal compliance capability absorbs a new corridor as an extension of what it already has. A firm without one takes on a second burden layered on a first it is still struggling to manage.

Mexico: When the Investment Case Moves Faster Than the Rules

Mexico's appeal as a nearshoring destination is real: preferential access to the US market under the United States-Mexico-Canada Agreement (USMCA) framework, competitive labour costs, geographic proximity, and an established manufacturing base. Mexico remains the United States' largest goods trade partner, on both imports and exports.6 That preferential access is in force but under renegotiation through the agreement's periodic review mechanism.7 That review is one expression of a broader uncertainty rooted in the United States' shifting approach to tariffs and trade policy, an uncertainty likely to persist even once new terms are agreed.

A July 2025 Federal Reserve FEDS Notes paper on USMCA automotive trade put the compliance cost of stricter rules of origin at 1.4 to 2.5 percent, ad valorem, derived from a sector whose compliance infrastructure is among the most sophisticated in manufacturing.8 That range is likely closer to the floor than the ceiling. The equivalent cost in less compliance-mature sectors is unquantified, but likely higher, and it falls hardest on the firms least able to absorb it.

ANAM, established in 2021, has been tightening compliance obligations for IMMEX-certified companies as part of that same broader enforcement trend, with near-real-time inventory data access required from late 2024. That shift has fuelled industry speculation that audits will eventually extend across the full IMMEX population, though ANAM itself has not confirmed this.9 The CSIS finding on VAT refunds is a direct product of that same tightening.

Mexico's regulatory institutions are formalising fast, moving from a permissive compliance environment toward a demanding one. When institutions are in motion, the cost of monitoring and adapting to that motion is itself fixed, and it falls harder on smaller operators. The trade framework underpinning the nearshoring case is part of that same motion, which puts institutional uncertainty on two levels at once. Vietnam went through this transition earlier, and the pressure now visible there is roughly where Mexico is heading.

The firms responding best are treating the IMMEX tightening as a forcing function. The near-real-time inventory visibility Mexico's tax authority, the Servicio de Administración Tributaria (SAT), now requires is also the foundation of better demand-sensing and working-capital management.10 Firms within managed warehousing or contract logistics arrangements often have this infrastructure in place already, and for them the compliance requirement and the operational upgrade point the same way. Firms that wait pay for it later, without the lead time to capture its benefits first.

A Third Finding, and a Different Angle

Before turning to Morocco, a third finding from the DP World Global Trade Observatory's 2026 Annual Outlook report shifts the lens. Only 35 percent of smaller and mid-market firms can access trade finance on reasonable terms, against a global trade finance gap estimated at $2.5 trillion.

The compliance story is also a capital story. The firms most exposed to the compliance burden are often those with the least access to capital to build the infrastructure that would ease it, and the separation the two gaps produce is more durable than either alone would create.

Switching costs are one of the ways early investment compounds into lasting advantage, and here the financing constraint makes them worse. A firm that cannot access capital on reasonable terms cannot fund the infrastructure that would close the gap. The longer it stays behind, the more compliance risk it accumulates, which affects its credit profile, which further limits its access to capital. The financing gap and the compliance gap form a cycle. Trade finance structured around shipment performance and compliance track record, rather than balance sheet size alone, is helping some mid-market firms break it.11

The route dimension compounds this. Preparing for a new corridor takes real investment: route-specific customs knowledge, broker relationships, amended insurance, updated documentation. Firms without trade finance may lack the capital to manage a diversified supplier base and a new set of corridors at once, a forced choice better-capitalised competitors don't face.

Morocco: The Window That is Still Open

Morocco is the earliest-stage version of this pattern, and the most useful to study precisely because the pressure visible in Vietnam and Mexico hasn't fully played out here.

Morocco's aerospace ecosystem, anchoring Airbus, Boeing, and Safran operations, reached roughly $2.6 billion in annual export value by late 2024, according to US International Trade Administration data.12 Morocco had implemented 91.2 percent of its World Trade Organization (WTO) Trade Facilitation Agreement commitments as of that year.

The firms anchoring Morocco's manufacturing growth are almost exclusively large multinationals with compliance infrastructure already in place and the volume to justify local customs expertise. A mid-market manufacturer arriving as a second or third sourcing geography faces a different task: fluency in the EU-Morocco Association Agreement's rules of origin, a supply chain potentially spanning three continents, and relationships still to be built with local customs specialists. The fixed cost of doing this properly doesn't shrink for smaller volumes. The same asymmetry driving bifurcation in Vietnam, and now emerging in Mexico, is present here too. The difference is that the window for getting ahead of it is still open.

Morocco's regulatory institutions are maturing, but haven't yet reached the enforcement intensity of Vietnam or Mexico. Formal commitments are in place; enforcement specificity is lower than it will eventually become. Firms investing in compliance capability now are acquiring institutional knowledge while it is still cheap to build. They are also establishing the broker relationships, customs partnerships, and regulatory familiarity that will function as barriers to later entrants: the scarce-asset dimension of first-mover advantage, applied to institutions rather than physical resources.

The trade finance gap matters here in a specific way. Firms with capital to invest ahead of the market are best placed to use Morocco's window. Firms without it may find the window closes around them by the time Morocco's compliance environment reaches Vietnam's current pressure levels, because the financing constraint made the choice for them.

Morocco's position as a transit hub between Europe, Africa, and the Americas gives it a role beyond manufacturing, and firms building compliance and logistics infrastructure early enough to serve both functions may find the investment pays twice, a return unavailable in more mature markets, where those capabilities are already commoditised.

What the Progression Shows

Read in sequence, Vietnam, Mexico, and Morocco look more like a gradual transfer of competitive advantage toward firms already large enough to manage compliance complexity than the broad-based resilience the diversification strategy was meant to create. That is an inference from the data, not a proven causal claim, and it is the inference the data supports most strongly.

Four separate lines of reasoning arrive at the same place. Fixed compliance costs produce consolidation wherever regulatory obligations fall unevenly across firm sizes, as post-Dodd-Frank banking demonstrated. Firms that internalise compliance capability outperform those managing it through market relationships, precisely in high-uncertainty environments these geographies represent. The gap between anticipatory and reactive firms widens over time, because learning-curve, scarce-asset, and switching-cost effects all compound the same way. And the window for building institutional knowledge cheaply closes as the regulatory environment matures. In all three geographies, it is narrowing.

It is worth circling back to where the series began. Investment was always going to flow toward the labour, capital, and resources manufacturing needs. What that tells us nothing about is what happens once it arrives. Those returns are being captured along lines of compliance capability rather than labour cost or geography. Comparative advantage explains where the capital goes. It says nothing about which firms profit from the journey.

The trade finance gap closes the loop, and the corridor dimension widens it. The compliance problem extends to every route connecting these geographies, and grows as those routes multiply.

The consolidation underway in the mid-market looks like the outcome for firms treating compliance as a cost to defer. Premium valuations attached to compliance-capable companies in the current mergers and acquisitions (M&A) market are at least consistent with the market pricing that advantage in. For firms building that capability independently, the same pressure squeezing less-prepared competitors may be strengthening their own position.

The geography of diversification is visible on a map. The discipline of resilience is visible in operational data: clearance variance rates, audit-readiness scores, how fast a firm can prove origin compliance when challenged. Increasingly, it's visible in whether a firm can absorb a new transit corridor without rebuilding its compliance infrastructure from scratch each time. The companies best positioned for the next decade of global trade are building both. The ones building only the first are learning, at considerable and growing cost, that a supply chain spread across many countries isn't the same thing as a supply chain that works.

Read the previous article in the The Hidden Cost of Supply Chain Diversification series, The Compliance Cost of Resilience, which explores how evolving regulations and compliance requirements are reshaping global supply chains.

References

  1. Center for Strategic and International Studies (CSIS). "Nearshoring Without Growth: Why Investment Uncertainty Is Holding Mexico Back." CSIS, February 2026. https://www.csis.org/analysis/nearshoring-without-growth-why-investment-uncertainty-holding-mexico-back
  2. General Statistics Office of Vietnam. "FDI Attraction Situation in Vietnam 2024." Ministry of Planning and Investment, January 2025. https://www.mpi.gov.vn/en/Pages/2025-1-14/FDI-attraction-situation-in-Vietnam-and-Vietnam-s-ehsipf.aspx
  3. VietnamPlus (VNA). "Bac Ninh Receives Additional Investment of Nearly 1.1 Billion USD." VietnamPlus, March 2025. https://en.vietnamplus.vn/bac-ninh-receives-additional-investment-of-nearly-11-billion-usd-post312577.vnp
  4. EY Vietnam. "Customs and Global Trade Alert: Post Customs-Clearance Audit Focus Areas 2025." EY Vietnam, July 2025. https://www.ey.com/en_vn/technical/tax/tax-and-law-updates/customs-global-trade-alert-july-2025-focused-areas-potentially-subject-to-post-customs-clearance-audit-in-2025
  5. AOG Worldwide. "What Does the Strait of Hormuz Closure Mean for My Shipments?" AOG Worldwide, May 2026. https://www.aogworldwide.co.uk/post/strait-of-hormuz-closure-impact-freight-forwarding-2026
  6. U.S. Census Bureau. "Top Trading Partners – Year-to-Date Total Trade, Exports and Imports." Foreign Trade Statistics, 2025. https://www.census.gov/foreign-trade/statistics/highlights/topyr.html
  7. Office of the United States Trade Representative. "Ambassador Greer Issues Statement on the USMCA Joint Review." United States Trade Representative, 1 July 2026. https://ustr.gov/about/policy-offices/press-office/press-releases/2026/july/ambassador-greer-issues-statement-usmca-joint-review
  8. Federal Reserve Board. "Trade Compliance at What Cost? Lessons from USMCA Automotive Trade." FEDS Notes, July 2025. https://www.federalreserve.gov/econres/notes/feds-notes/trade-compliance-at-what-cost-lessons-from-usmca-automotive-trade-20250718.html
  9. Foley and Lardner. "Shifting Regulatory Landscape for Automotive Manufacturers in Mexico." Foley and Lardner, December 2024. https://www.foley.com/insights/publications/2024/12/shifting-regulatory-landscape-automotive-manufacturers-mexico/
  10. CCN Law. "Important Amendments to Annex 24 of Mexico's General Rules for International Trade (Inventory Control System for the Business Certification Program)." CCN Law, 16 October 2024. https://ccn-law.com/en/important-amendments-to-annex-24-of-mexicos-general-rules-for-international-trade-inventory-control-system-for-the-business-certification-program/
  11. DP World / Horizon Group. "Global Trade Observatory Annual Outlook 2026 – Trade Finance Data." DP World, January 2026. https://www.dpworld.com/en/global-trade-observatory
  12. US International Trade Administration. "Morocco Aerospace and Defense." ITA, December 2024. https://www.trade.gov/market-intelligence/morocco-aerospace-and-defense