Most companies are familiar with offshoring, but not as many have really grasped the profound benefits of nearshoring manufacturing. In hopes of reducing costs and strengthening market competitiveness, it is often necessary to relocate manufacturing to another country. But where that country is located matters.
Rather than just going with the cheapest labor or most popular manufacturing destinations in Asia, outsourcing to a country on the North American continent like Mexico may prove the better option. In fact, as labor markets continue to shift around the globe, the choice might be much simpler. Nearshoring allows for all of the benefits of offshoring, yet provides many of the same benefits of manufacturing locally. In essence, it can be the best of both worlds.
Basically, nearshoring is a kind of outsourcing. Offshoring, the practice of moving manufacturing operations to a distant country on another shore, is also a type of outsourcing. Rather than setting up manufacturing operations in your home country, your company opens or contracts with a manufacturing operation in another country where conditions are more favorable to the manufacture of your product.
However, while offshoring manufacturing to Asia has been quite popular for the past three decades, nearshoring is quickly outshining this option. Because of the benefits of nearshoring, more and more US manufacturers are leaving China and other Asian countries and relocating to the North American continent. This process of moving factories and facilities from a distant country back to the US or a neighboring country is known as nearshoring. It likely still involves outsourcing the process to a foreign factory, but that factory is either in another US state or in Mexico or Canada.
Mexico, in particular, has been a longtime economic partner with the US. And as the cost of labor in Mexico declines, more and more manufacturers are nearshoring to the US-Mexico border. These producers find they prefer having their production nearby. And the reasons for this are numerous, especially for a country so uniquely suited to manufacturing for export as Mexico. But here are seven of the most important benefits of nearshoring vs. offshoring.
While shipments from China are measured in weeks and US ports continue to back up, nearshoring from Mexico or Canada means transit times could be reduced to just a few days. This is especially true for border areas like Baja California, which boasts major manufacturing clusters in several major industries and is simply a border crossing away from US distribution.
Managing manufacturing operations on the other side of the globe can be a nightmare. With nearshoring, corporate offices are likely in the same time zone as the factory or only an hour or two offset.
With uncertainty the new norm, nearshoring affords greater control over the supply chain. Vendors and suppliers can be sourced relatively locally should something come up.
Customer demands change rapidly in today’s market. This is especially true in a post-Covid world in which situations can change dramatically in very little time. The ability to respond to these market changes rapidly without major disruption is crucial. Locating factories near your consumer market is key to maximizing flexibility, and this is one of the key benefits of nearshoring.
Due to closer and more responsive management of operations, nearshoring leads to more cost-efficient manufacturing. Additionally, labor rates in nearby countries like Mexico are often cheaper.
One of the most overlooked benefits of nearshoring is that different countries have completely different cultures, workplace norms, and traditions. But working with a neighboring country minimizes these differences. For example, US business travelers to Mexico should know certain customs before dealing in that country. Yet these cultural differences are much smaller than the cultural chasm between US business leaders and their counterparts in Asia.
Basing manufacturing operations in an offshore location exposes the parent company to import/export liabilities and expensive tariffs. But when dealing with a neighboring country, tariffs are usually minimal. For example, due to the NAFTA and now the USMCA agreements, Mexico and the US trade inputs and finished products almost duty free on the majority of products manufactured for one another.
There are many additional benefits of nearshoring. But these represent key reasons your company should consider keeping or moving manufacturing in North America. If you would like to learn more about the benefits of manufacturing in nearby Mexico, contact us for a consultation.
