The advantages of nearshoring are numerous for U.S. businesses. Suppliers and manufacturers in far away countries can become stifled due to various supply chain issues. With the nearshoring strategy, U.S. companies can circumvent these challenges and boost their efficiency.
The Center for Strategic & International Studies claims there are numerous advantages of nearshoring. Among them include:
Overall, companies can expect smoother operations when they use nearshoring.
We’ll explain the advantages of nearshoring and how you can incorporate it into your business operations.
Nearshoring is one of a few different outsourcing options where a business in one country will hire a third party in another nearby country to perform certain business operations.
Some examples of nearshoring include the following:
In each of these examples, the third party performing the outsourced services is in a country that shares a border or hemisphere with the country where the nearshoring company is located.
In the case of the U.S., nations throughout the Americas are becoming more attractivenearshoring partners due to the problems facing the global supply chain. Their proximity and favorable relations with the U.S. are also helpful. To show the influence of this strategy, we’ve provided some data on the top nearshoring sectors.
|Textiles & Clothing
|Coke & Petroleum
|Leather & Leather Products
|Wood & Wood Products
|Paper & Paper Products
Provided by S&P Global PMI
As these statistics show, nearshoring is already having significant influence over various industries. Its success means this technique is likely to be used more and more in the future.
The nearshore outsourcing option is very appealing to those focused on bringing business closer to home. That said, there are many other advantages that you’ll reap when entrusting aspects of your company processes to another country.
Transporting goods produces by a nearshore partner will much cheaper. There are a few specific reasons why nearshoring is cost-effective:
The farther goods have to travel, the higher the fuel costs will be. This inevitably drives up the expenses to import goods from another country. However, nearshoring businesses won’t face this problem to the same degree because the company they’re outsourcing to will be much closer to them.
Hiring a third-party provider from a nearby country will also be cheaper than developing certain business operations in-house.
A downside that comes with outsourcing business operations to a faraway country is the lack of control. With nearshoring, companies will be much closer to your home base of operations.
There are a few ways in which you gain more control with proximity:
While there are plenty of reliable third party providers close to the U.S., being able to monitor them during the development process allows business to monitor production more closely.
As far as language is concerned, even if there isn’t someone who speaks English, the next most common language in the Western Hemisphere is Spanish. The U.S. just so happens to have the fourth-largest population of Spanish speakers, so finding bilingual talent should be easier.
Any third party you outsource certain business operations to will have a specialized team whose main focus is on the task they’re given. This means you can expect quality results from the team performing the task.
Talent in nearshore countries may also be more diverse. There are many workers that have specialized skills in a variety of fields. Businesses can capitalize on the diverse talent pool by outsourcing a wider variety of operations.
Something all business owners, entrepreneurs, and importers care about is the protection of their intellectual property (IP). IP laws are better enforced in a nearshore country that is part of a Free Trade Agreement(FTA) like Canada and Mexico.
Other reasons nearshoring increases IP security includes:
Countries setting themselves up as nearshoring destinations have strong data security practices, or are enhancing existing systems. This can include encryption protocols and access control measures. Businesses can also monitor the security of their IP with audits. Performing these will be able easy to do since nearshore countries are very close.
Some nearby nations have sophisticated legal frameworks that protect IP. Thanks to these laws, infringements will be deterred and punished if they occur.
When you are outsourcing manufacturing of any kind, or simply looking for overseas suppliers, shipping times matter. Ocean transit times for goods coming from the other side of the world can take a month or more one way. Air freight can cut that time down, but isn’t cost-efficient or practical in many cases.
In comparison, ocean shipping between the U.S. and common nearshoring destinations often takes less than two weeks.
In some cases, the freight coming from a nearshore country can be transported using rail and truck and goods arrive to their destination in days. These shipping modes will allow companies to bypass the delays plaguing ocean ports.
Setting up nearshoring operations can be very time-consuming and, at times, extremely difficult. There are a few steps that you’ll need to follow thoroughly to successfully outsource some aspects of your business operations to a nearby country.
Despite the challenges, many businesses find the investment pays for itself quickly.
Nearshoring is a great service to use, but you must make sure to use it carefully. The best way to start is to determine what you need from the nearshoring team you wish to hire.
Outsourced processes often include things such as:
The sooner you can identify what service you require, you can now start honing in on a third party in a nearby country that can perform important services for your business.
Finding and vetting a nearshore partner will be your next step to complete.
You can find a nearshore partner to perform certain business functions by:
Another way you can establish relations with a nearshore partner is through the International Trade Administration (ITA). The ITA helps U.S. businesses find partners and buyers in other countries to conduct business with. These services could lead you to find a nearshore partner.
At Product Distribution Strategy, we understand how difficult it can be for businesses to manage their goods. That’s why we offer a variety of consulting services for different areas of your operation. During these meetings, you’ll be able to discuss your current set of challenges with one of our product distribution experts.
Consulting services we offer include: