The traditional offshore sites such as China, Eastern Europe, and India are not as advantageous as you would expect. However, increased manufacturing costs propel companies to opt for traditional offshoring. But the recent plunge in the cost of ownership in these regions brings North American nearshoring back in the spotlight.
In layman’s terms, nearshoring refers to the process of bringing manufacturing back from the traditional offshore or overseas locations such as India, Bangladesh, China, and Eastern Europe. The idea of nearshoring is to bring back manufacturing from international sites and back to the local markets.
Nearshoring and COVID-19 Pandemic Crisis
With the onslaught of pandemic crisis and unstable trade relations, it would make sense for the new U.S democratic administration to bring manufacturing back to the U.S. It is vital to understand that the interchangeable use of reshoring and nearshoring is quite common.
Preparation and Benefits of Bringing Manufacturing Back to North America
The question is “how” the U.S. will roll out new long-term expansions and maintain streamlined productions to meet high supply chain demands. With nearshoring, U.S. won’t have to deal with high transit time, infinite complications, and lack of control over global logistics capacity and shipping costs.
Furthermore, the close proximity to the markets will also decrease labor costs of skilled workers over time. And most importantly, U.S. would be able to align the manufacturing needs with balanced cultural influence. Besides, U.S. can leverage the current disillusioned state with China and initiate the efforts to bring back manufacturing.
Timing is of the essence when it comes to nearshoring. And the U.S. has the advantage to lead the nearshoring drive in the coming months. Of course, the focus of attention extends beyond bringing China-based manufacturing.
As productivity takes a plunge in the urban and rural population in other Asian and Eastern European regions due to the pandemic, there is a growing need to bring manufacturing efforts back home. Not to mention there is already too much tension between China and U.S., largely because of the previously imposed tariffs on imports to gain a short-lived competitive advantage.
In order or preserve the future and drive growth in manufacturing, the best course of action would be to bring back the manufacturing efforts before the tensions escalate or lead to unexpected and complex scenarios.
New Rules of Engagement
The rules of engagement of the previous U.S. administration were far too aggressive. With continuous upheavals in the political climate and financial disarray, it would make sense to supercharge and optimize manufacturing efforts right at home.
Geopolitical Conditions and Security Concerns
Whether it’s a geopolitical confrontation or a matter of national security, many U.S. manufacturing companies have started to feel the intimidation from Beijing. Most manufacturing companies in China continue to make security concerns more efficient in order to make production resilient.
Currently, the U.S. is in a position to bring back major manufacturers of electrical equipment and machinery. But when it comes to nearshoring and bringing the manufacturing back to North America, there will have to be a thorough assessment of expectations. The reality remains that the integrated supply chains for mechanical components in low-cost regions are so established and still drive the total cost of goods to a point of being more competitive than North America.
This does not take into consideration the lack of interest younger professionals have in manufacturing-related trades in the US. Younger generations are far more inclined to be YouTube sensations than they are to operate machines on a production line.
Logistics experts insist that local suppliers, however, may be at high risk. Contrary to misguided belief, nearshoring does not slow down or make the manufacturing process redundant. It represents the change in manufacturing and supply chain processes that makes domestic trade more resilient.