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When Reshoring Won’t Do, Nearshoring May Be the Answer

August 13, 2020

Tony Arndt

August 13, 2020

As weeks turn into months with the pandemic, what it means for businesses and consumers continues to evolve. In the United States, this is particularly true as delayed reactions and disbelief prolong the fallout and likely recovery into next year and beyond.

Supply chain decision-makers are adjusting strategies left and right, based on the changing demands of their market, budget restrictions, limited resources, and safety concerns.  

Across the last few decades, U.S. manufacturers have invested heavily in offshore production, especially from China and other Asian suppliers. Over time, for various reasons, a reshoring movement called for production to come back home. Reshoring efforts between 2010 and 2018 brought an estimated 749,000 jobs back to U.S. workers, while helping to curb counterfeits and unexpected costs from shipping delays and damages.  

Now, five months into the global crisis (and counting), tens of thousands of businesses are still taking the news as it comes and working to adapt. For supply chain and logistics experts -- and any company with international partnerships -- logical and often necessary considerations include what is referred to as “nearshoring.”

In situations where complete reshoring is not possible, nearshoring provides the middleground. For example, if it’s still too expensive to bring production to local facilities, neighboring countries can sometimes offer lower rates while eliminating some of the distance and unpredictability of overseas production.

According to a recent Capgemini study, 52% of organizations in India are now planning a shift to nearshore locations in wake of the COVID crisis. This joins remote work, digitization, and automation as the most widespread developments defining the “new normal” of post-pandemic business values.  

“The global impact of the novel coronavirus outbreak has given further urgency to the mission of making operations more mobile, leveraging new virtual tools and tactics and enhancing the connectivity between separate locations,” writes Fabio Caversan of Forbes, in an article from June 2020. “For companies that have considered exploring a nearshoring model, there might not be a better time to move forward.”

Nobody was fully prepared for the pandemic, or wants it to continue any longer for that matter. With that said, movements like reshoring and nearshoring may turn out to be best case scenarios for many companies, and not just short-term reactionary measures. Benefits of nearshoring, as described by Forbes, can include the following:

  • Same or similar time zones
  • Shorter travel times due to geographical proximity
  • Fewer language barriers and cultural obstacles

Along with these, the nearshoring movement will immeasurably improve safety measures and the ability to track shipments and prevent unwanted activity -- whether that means counterfeiting, lost or stolen shipments, and mishandling of customer data.  

China and neighboring Asian countries have long been the go-to for American businesses needing low-cost suppliers, but have also become the epicenter of counterfeit operations up to and during the pandemic. But recent data shows that U.S. companies are leaving China for closer partnerships, especially in Mexico and Canada. As nearshoring grows in popularity, along with rising trade tensions between the U.S. and China, safe money is on this trend continuing. According to one study, 76% of U.S. businesses with production in China have moved or are planning to change locations, with one-third doing so in the near future.  

Nearshoring initiatives will not be without their own challenges. For instance, the regulatory environment in Mexico is rife with conflict, and investor confidence in the country’s privacy secor was at an all-time low in 2019. But with this historic shift in thinking, and many businesses unlikely to turn back, any challenges in nearshoring will be viewed as hurdles but not deal-breakers. And with regard to U.S. production, nearshoring is an unprecedented opportunity for the Mexican and Canadian economies and workers, not to mention the governments looking to improve relations.

The needs of every business are different, and as we’re learning during this crisis -- the hard way, in many cases -- dramatic changes are sometimes necessary even for the most successful organizations. Just as millions of offices are finding the benefits of remote employment, with many unlikely to go backwards, nearshoring may be the next step for those that have long relied on overseas partnerships.

The closer you bring production to home, the better visibility and control you can have over thousands of products, parts, and other other shipments. This is especially true when using advanced tracking and authentication solutions, such as those offered by LocatorX. During this transitional time, we’re proud to support manufacturers in optimizing and safeguarding the supply chain, and making their “new normal” the best normal possible.

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