11 Benefits of Nearshoring: Why You Should Choose Nearshoring
Nearshoring is the act of moving business operations (usually production) to a neighboring country. Nearshoring can be considered an alternative to reshoring (moving from international to domestic operations) or offshoring (outsourcing operations to faraway countries). Many companies today are taking advantage of the benefits of reshoring. However, you may also benefit from nearshoring your operations. Nearshoring can reduce lead times and operational costs and improve responsiveness to market opportunities. This article explains nearshoring and the benefits it imparts to companies.
Here are 11 benefits of nearshoring:
According to the reshoring initiative, a large number of companies have brought business operations back to their native countries to use the large pool of talent close to home. Similar reasoning also holds true for nearshoring, especially when companies can hire remote workers, giving them access to a wider range of highly skilled employees.
Not only does it take time to set up a new offshore production line, but it will also take time to ship goods to the market where they’re sold. That wasn’t always a problem in the past. Now, however, companies have to compete with Amazon's next-day delivery. Customers don’t want to wait weeks for their items; they expect things to arrive quickly. Nearshoring improves your delivery times by placing production closer to your customers.
By nearshoring the production of goods, your import tariffs may differ from far offshore mandates. This is especially true if you’re selling in a country that has good trade agreements with the production location.
Certain foreign markets offer very little protection against intellectual property theft. Competitors end up selling what are essentially duplicates but never have to invest in actual development. At best, you lose market share, and at worst, they make inferior products and ruin the perceived quality of your brand. Luckily, it’s usually easier to protect your intellectual property in nearshore locations.
The digital disturbance is the effect that digital systems have on the market and people’s expectations and behaviors. In Western countries, every process is becoming faster and people now expect things to happen instantaneously. Companies working under an offshore model will struggle to keep up with this new pace, so nearshoring can help them keep up with customer expectations.
When production is nearshored, you almost invariably reduce lead times for your customers. This shorter lead time also minimizes the risks baked into long and complex logistical supply chains.
Companies that operate on nearshoring strategies have an easier time scaling their operations in response to market shifts. This is because nearby countries are more likely to have existing infrastructure of the type that the upscaling demands.
Customer satisfaction often relies on the fulfillment of speed, quality, and cost. Production costs can be minimized and delivery times shortened while still maintaining quality. Nearshored businesses gain a competitive edge against companies that continue to use offshore business models.
When problems occur with overseas production, it takes time to resolve them. Sometimes the issues aren’t discovered until parts pass through customs. Additionally, time zone disparities can slow the communication process.
When production is outsourced, your quality control process becomes much more difficult. Nearshore productions give you better control over the supply chain than offshore ones. You have the option of working with local production facilities and vendors to ensure the best quality products.
Recent years have exposed the fact that unforeseen events can quickly develop into massive interruptions for global-scale operations. By nearshoring, organizations can reduce the risks inherent in long supply chains and opt for shorter, less complex chains with fewer potential points of failure.
Nearshoring is not all positive, however. There are also some disadvantages:
- The act of moving production from overseas to a closer point is resource-heavy and can result in disruption.
- There are always new challenges with setting up production in an area you haven’t previously used for production.
- The organization will need to forge new relationships with suppliers and logistics.
- Although the quality of the new production may be better, it will still be a change. Some customers dislike changes of any kind.
One thing to consider when exploring the possibility of nearshoring is the work culture. If the cultures are too different between countries of operation, then communication can break down and become a barrier to progress. Another key aspect is the infrastructure capabilities of the nearshoring country. Make sure your potential site has adequate: electrical, internet, waste management services, and training and equipment support.
Every change to a business carries risk. It’s always possible that the new location will not be able to deliver on your reliability or quality promises. This risk is expanded when the new location is in a country where you’ve never operated. The benefit is that, in the long run, the risk associated with long and complex supply chains will be reduced.
Nearshoring alters the way businesses operate by: reducing logistic costs, production costs, and lead times, and by improving response times to market changes, enhancing quality control, and opening up production to a wider pool of talent. It’s often enough of an advantage to pull ahead of competitors who depend on offshore operations.
Because nearshore facilities operate in a similar time zone as you, you’ll find it much easier to communicate and solve problems. Time zone differences can be big stumbling blocks for offshore operations. This improved ability to communicate allows nearshore companies to respond more quickly to problems.
How Can Nearshoring Enhance a Company’s Ability To Respond Quickly to Market Changes and Customer Demands?
Nearshoring enhances a company’s ability to respond in two ways. Firstly, companies can quickly scale up production in countries with infrastructure that supports such changes. Secondly, companies can be more dynamic with their orders and use a “just in time” stock system that produces stock at the same rate it’s sold. Offshore operations typically have to keep a large stock on hand so customers won’t need to wait for deliveries.
Because a “just in time” business model eliminates standing inventory, nearshoring companies save significant amounts of money on storage. Companies can also save money on transport costs, import tariffs, and labor costs. The money they save can be invested into other business opportunities.
Most sectors can benefit from nearshoring. However, some are better situated to take advantage of nearshoring than others. Here are a few examples:
- Logistics and supply chain management
- Customer services
- Automotive and Transport
Nearshoring can help many companies, but all business model changes must be assessed on a case-by-case basis. Some companies may not benefit from nearshoring right away, but it can still position them well for the future. Here is a list of companies that have benefited from nearshoring:
- Cardinal Health
Nearshoring can help many businesses’ bottom lines. It confers access to a wider pool of talent, which mitigates capacity and resource constraints in the onshore market. It allows the movement of resources to focus effectively on the most profitable activities. Nearshoring also gives decision-makers great control over pricing and relationships, especially for services that require goods to be transported by land. Additionally, nearshore materials and labor are often cheaper than in offshore locations. Finally, some countries offer tax incentives to encourage companies to set up shop within their borders.
Nearingshoring can improve service quality because it makes logistics more efficient. This enables quicker transport of goods to the customer and limits storage costs and processes. Nearshoring also enables improved quality control since the production happens near the company’s ownership and customers alike; defects will be discovered and addressed more quickly.
Nearshoring is an effective way to meet fast customer demands primarily because it minimizes the challenge of coordinating work across vastly different time zones. You’ll be better equipped to take on time-sensitive projects that need instant decision-making and frequent communication.
Nearshoring offers different benefits than other outsourcing models such as offshoring, but there are some shared benefits. For example, all outsourcing models give you access to a wider pool of resources and talent. And, of course, the main point of outsourcing in general is to take advantage of cheaper material and labor costs in the target location.
Nearshoring aids you in different ways than onshoring. However, there are some shared benefits. For example, you’re likely to share cultural and social expectations with both nearshore and onshore employees — you won’t have to learn a whole new culture to keep your personnel happy. Additionally, the fact that you’re all in or very near the same time zone makes collaboration much simpler. To learn more, see our article on Onshoring.
Nearshoring and offshoring have some unique and shared benefits. Both give you access to new pools of talent and resources. Additionally, some countries offer advantageous tax rates and cheaper goods. Such situations depend on the country and not necessarily its proximity to you.
Nearshoring shares some of the same benefits as reshoring. For example, it gives you more resilience and control over supply chains. Both models can mitigate the uncertainty, disruptions, and delays that are common in long and complex supply chains. Additionally, since both models put your production in or near the same time zone, you’ll find it easier to communicate and control your operations. To learn more, see our guide on Reshoring.
This article presented the benefits of nearshoring, explained each of them, and discussed how each is a benefit. To learn more about nearshoring, contact a Xometry representative.
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