9 Successful Nearshoring Examples
Nearshoring is a valuable tool that can be used to grow and support a business. Outsourcing does not need to be done to the cheapest location in the world—that does not automatically lead to business success. Nearshoring (outsourcing to a nearby country) can provide the best blend of cost-effectiveness and risk mitigation. It provides greater collaboration with and supervision of the outsourced teams, together with more efficient supply chains.
To illustrate its potential benefits, 9 successful nearshoring examples are described below:
The American airplane manufacturer Boeing conducts significant nearshoring manufacturing in Mexico. The arrangement is through its French supplier Safran, which constructed a wiring factory in Mexico in the 1980s. Safran has expanded its operations further, now also producing cabin interiors. This facility now provides 95% of the wiring for Boeing’s flagship 787 Dreamliner aircraft.
Whirlpool is based in Michigan as a major manufacturer of home appliances. In 1987, it nearshored a significant portion of its operations to Mexico. Today, the majority of the appliances built in Whirlpool’s Mexican operations are sold in the US and Canada. The success of nearshoring manufacturing to Mexico has resulted in many other appliance manufacturers following suit, to take advantage of the lower labor costs, ample capability, and strong supply chain.
The law firm McDermott Will & Emery (MWE) is an award-winning firm based in the US but with offices in Europe and Singapore. They provide legal services across a broad range of business needs. MWE chose to partner with a boutique software agency in Costa Rica, Pixel506, to build its new web platform, which would also incorporate its new corporate branding strategy. MWE has subsequently won recognition and awards for the best legal website.
Inditex, the parent company of big brands such as Zara, is based in Spain. Inditex has been nearshoring a portion of operations to Turkey and Morocco. Having the manufacture of textiles and clothing items in these nearby countries, as opposed to the typical, distant clothing manufacturing locations such as India and Bangladesh, means that Inditex can adapt much quicker to customer interests.
Dropp is a start-up that provides last-mile delivery services. When they were looking to decide their technical strategy, they nearshored the required support from Spain via Zartis. First, for consulting support on various areas of their technical strategy such as software architecture and infrastructure. Then, the nearshore resources from Zartis helped to implement this strategy at Dropp.
Comparis is a Swiss online marketplace related to motorcycles, cars, and real estate, with a comparison of insurance and bank options. Comparis was looking to scale its teams for React and .NET but was constrained by a limited talent pool. The digital services firm Zartis was able to support the company by providing full-time developers (from Spain and Poland) who were able to integrate fully within Comparis’ teams. This provided flexibility and capability with a very short lead time.
Toyota is a Japanese automobile manufacturing company. In 1996, it nearshored a manufacturing facility in Thailand. The success of this move has led to a further two Toyota plants being established in Thailand. Toyota also relies on manufacturing operations in Indonesia. These nearshore facilities allow Toyota to access lower labor costs within the same geographical region.
Parkdale Mills is a major textile manufacturer based in North Carolina. With raw material supply chains under pressure during the COVID-19 pandemic, it decided to nearshore a new yarn spinning facility in Honduras. This move not only simplifies their supply chain but also takes advantage of trade agreements in the region.
Fexco, an Irish financial technology and business services firm, looked to nearby Spain for assistance with modernizing its tech stack in 2016. This nearshoring team from Zartis brought highly skilled full-stack developers (from both Spain and Poland) to collaborate with the internal Fexco team. Together, they successfully moved Fexco’s software to a cloud-based solution and modernized their architecture.
Nearshoring in business is outsourcing a particular service to a remote team or 3rd party in another country—specifically a country near the business’s home country. This outsourced service can be consulting, customer support, IT development, or manufacturing of parts, for example. The reason for nearshoring is primarily cost-effectiveness—that service can be provided cheaper in a different country. However, outsourcing to countries with close geographical proximity limits the risk associated with different time zones, cultures, and complex supply chains.
Certain industries lend themselves more naturally to nearshoring. Some of those best suited are explained below:
- Manufacturing: Manufacturing can often be completed cheaper in less-developed nations due to lower labor and raw material costs. Nearshore locations allow a simpler (and cheaper) supply chain to get parts to final assembly, or completed units to the consumer.
- IT And Software Development: IT and software development is a digital service, which naturally has a limited need for proximity to the main business. Talent is also critical to efficient and quality work, and nearshoring allows access to a wider talent pool.
- Customer Service and Support: These services are naturally provided remotely, and typically need large teams with stringent availability. This service can therefore be outsourced to a nearshore country with lower costs.
- Financial and Business Services: Financial services can be provided digitally by remote specialists. Nearshoring these services takes advantage of having similar time zones, allowing timely support and simpler collaboration.
Yes, nearshoring is suitable for the Business Process Outsourcing (BPO) industry. The main reasons are that remote work is effective through digital tools, labor costs may be lower in the nearshore country, and there is access to a wider talent pool. The outsourced partner also specializes in particular support services (such as customer service or IT support), allowing the main business to focus on its core competencies and strengths.
Yes, nearshoring is recommended for the manufacturing industry, primarily to take advantage of lower labor costs outside of the business’s home country. These lower labor costs can significantly lower manufacturing costs. There may also be access to lower-cost raw materials in the nearshore location. Nearshore manufacturing also has the advantage over offshore manufacturing in terms of having simpler logistics to transport parts or finished goods to their final destination in the home country. This usually leads to a more efficient supply chain and lower costs.
Yes, the IT industry is suitable for nearshoring. It is digital by nature, and therefore remote teams can easily contribute to the product (or service) and other valuable intellectual property. However, IT nearshoring still has advantages compared to offshoring, primarily in the management and supervision of the outsourced team. Cultural similarities and close time zones make it much easier to ensure close collaboration and integration.
Nearshoring provides access to a new talent pool in a different country. That talent pool should ideally have capacity in the specialization that is missing in the current labor force. The most common approach is to outsource the acquisition of labor to a nearshore partner. This partner would be well-versed with the employment laws of that country and have an existing pool of relevant talent to draw on. The pool of talent available through this nearshore partner can provide flexibility and a short lead time for bringing on additional resources when required.
Nearshoring has significant advantages when compared to both onshoring and offshoring. The advantages of nearshoring include:
- Geographical Proximity: Allows the outsourced team or production facility to be close to the main operation geographically. This means that the time difference to the nearshored operation will be minimal, limiting the difficulty of managing that operation. There are also usually some cultural similarities (or at least familiarity) within geographical zones, which can make working together easier.
- Logistics and Supply-Chain Efficiency: Provides much better supply-chain efficiency and simpler logistics, compared to offshore manufacturing. The geographical proximity results in fewer and shorter hauls, which are typically at lower risk of disruption by weather or political conditions.
- Cost Reduction: Provides a cost reduction compared to onshoring due to lower labor costs or other benefits from that country’s federal laws. Nearshoring also provides some cost benefits over offshoring in the category of travel costs and potentially logistics. The proximity of the nearshored operations will usually result in lower transport costs for supervision, quality control, and shipping, compared to offshoring.
- Access to Talent: Provides access to another talent pool, one which may have strengths and availability in desired skills that are not present in the business’s home country.
Some compromises may be made when opting for nearshoring compared to offshoring. Some of these disadvantages include:
- Limited Cost Savings: May not be as cost-effective as offshoring. Some of the cost savings will be realized compared to onshoring, but the costs will likely still be elevated compared to the cheapest alternative globally. However, forgoing the lowest cost option is a compromise that retains the benefits of easier management and a simpler supply chain.
- Limited Talent Pool: By choosing to nearshore rather than offshore, there is a limitation that is placed on the available talent pool. For instance, by choosing not to outsource to the Far East, talent in China, South Korea, or Indonesia (as examples) are not available. However, the nearshoring decision will mitigate this by targeting a nearby country that has an abundance of talent that is being targeted for the outsourced operation.
- Language Barriers: There is the possibility of language barriers making management of the nearshored operations more difficult. Nearshoring by nature limits the countries to consider for the outsourced activities, and many of those nearby countries may use a different language than the main business. However, this can usually be mitigated by familiarity with the language due to many employees being exposed to, or having their origins in, these nearby countries and their languages.
Yes, nearshore outsourcing can be risky, but the benefit is that it has a lower risk profile than outsourcing to geographically remote countries, or those in vastly different time zones. With nearshoring, although there is some risk due to the operations being in a different country, the outsourced partner is close enough (and in a similar time zone) that there can be close collaboration, integration, and supervision of the nearshored team. Nearshoring can bring a great blend of the benefits of outsourcing and significantly lower risk due to the ease of greater collaboration and supervision.
Nearshoring is the establishment of operations in a geographical location near to the business’s home country, or near to its main consumer base for sales. It can therefore include countries that are not neighboring to the business’s home country and could potentially have a different language. However, reshoring is returning operations to the same country as the business’s main operations or consumer base. Therefore reshoring will mean that the reshored operations are carried out in the same language and under the same federal laws as the main business.
To learn more, see our guide on Nearshoring and Reshoring.
This article presented examples of nearshoring, explained each of them, and discussed them in detail. To learn more about nearshoring, contact a Xometry representative.
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