Nearshoring is a business strategy in which companies outsource their processes or services to nearby countries rather than distant offshore locations. The goal is to take advantage of geographical proximity, saving costs while maintaining cultural alignment. By choosing neighboring regions or continents, companies can improve collaboration and communication, making nearshoring an appealing option.
How Nearshoring Works:
The nearshoring process involves several key steps:
- Needs Assessment: Companies evaluate their requirements and identify specific functions or services to be nearshored.
- Destination Selection: Based on factors such as proximity, labor costs, talent pool, and infrastructure, companies choose a suitable nearby outsourcing location.
- Partner Selection: Companies select an outsourcing partner with expertise and a reputation for meeting their needs.
- Transition Planning: Detailed plans are developed to transfer responsibilities and knowledge to the nearshore team.
- Actual Nearshoring: The nearshore team takes over outsourced tasks, with continuous monitoring and quality control.
Expanding Horizons and Job Market Impact:
Nearshoring is rapidly expanding, especially in industries such as software development, customer support, and manufacturing. For example:
– Software Development: A US tech company might nearshore software development to Mexico, benefiting from real-time collaboration and cost savings.
– Customer Support: European e-commerce companies often nearshore customer support centers to neighboring countries in Eastern Europe, maintaining similar time zones for efficient service.
– Manufacturing: Automotive manufacturers nearshore production of vehicle components to suppliers in nearby countries.
As nearshoring continues to expand, it is affecting job markets worldwide. Countries with strong nearshoring partnerships have seen an increase in employment opportunities, while others may encounter challenges due to talent migration. Nevertheless, in general, nearshoring promotes economic growth and cross-border collaboration, ultimately shaping the future of global business operations.
Following are some examples showing how Europe and the United States are taking different approaches related to nearshoring.
In Europe, about 31% of EU buyers are using a combination of reshoring and nearshoring strategies. EU-based brands and retailers prefer nearshoring and reshoring, which currently make up 15% of all European brands’ and retailers’ purchases. This preference persists despite geopolitical uncertainties in the Red Sea region.
The United States: American buyers show a strong preference for nearshoring, but they are slow to transition from interest to implementation. Only 20% of US buyers reported an increase in domestic sourcing in 2023. Mexico continues to be the primary sourcing market for North American companies, surpassing China as the top trade partner. However, US companies need to overcome barriers to fully realize their nearshoring plans.
