The Changing Landscape of Global Nearshoring
While the financial crisis is long gone, and most economies are getting back on their feet, the process is rather sluggish. The economic growth ranges from 1 to 3 percent for developed economies like the US, while the so-called “emerging markets” in Asia and Africa could potentially see growth range from 2 to 6 percent. According to a 2014 global study conducted by the Penn State University, slow economic growth will continue to be a major factor affecting the landscape for at least the next twelve years. Consequently, these slow conditions are expected to spur more nearshoring of manufacturing activity back to the Americas in the near future.
As we can see, the process of nearshoring – which involves moving the business process, production or information technology from overseas to a closer site – continues its global progress. In fact, a recent AlixPartners study showed that almost a third of distribution companies in North America and Western Europe (32% to be exact) have already nearshored or are in the process of doing so in order to meet end-market demand. However, things are starting to evolve; stability and security of some promising locations are in decline. While this is not a crisis by any means, some corporate leaders are worried about the implications, even as nearshoring progresses on a global scale.
Rising Labor Costs Abroad
High labor costs in the United States and access to the Chinese labor market were the primary instigators for companies’ initial movement to China. However, Chinese wages are now climbing up to twenty percent per year, and thanks to a supply-and-demand imbalance of skilled workers in certain manufacturing regions, we are seeing a global pressure to upgrade Chinese labor practices and an increased employee demand for better conditions.
Escalating Energy and Decreasing Transportation Costs
The rise in energy costs is one of the biggest factors pushing nearshoring, and transportation costs are becoming prohibitive. Most companies cannot raise their prices 20 to 30 percent in order to cover transport costs, and that is why nearshoring through Mexico and Latin America is becoming increasingly popular. While a deteriorating security situation in Mexico has major implications for US companies with Mexican operations, the country still remains one of the most attractive nearshoring destinations.
Looking for Countries with Stable Infrastructure
Finding nearby countries with a firm infrastructure sounds simpler than it really is; just because a certain country was known for having a solid structure in the past, it does not mean it will have it in the future. Let’s take Chile for example – the country has traditionally been regarded as having a strong infrastructure, but Chile is currently facing an energy crisis, because of an estimated annual demand increase of around seven percent.
Looking for New, Emerging Talent
According to a recent IT Leadership Report from EMEA, more than around 45 percent of IT leaders in the United Kingdom say that they will have more to do on a lesser budget in the next twelve months. So it is not surprising that within five years, IT managers expect that more than 40 percent of their infrastructure will be outsourced. UK-based companies are turning towards the Eastern Europe in order to discover new talent and save some money in the process. With companies like the NSM Engineering nearshoring is a cost-effective and timesaving process.
High-Tech Companies Are Showing Interest in Near Shoring
Tech companies are slowly making changes to their supply chain models to meet changing customer demand patterns, provide better customer experience and capture new growth opportunities. According to the 4th Annual Global UPS survey, interest in nearshoring has basically tripled in the last five years. Furthermore, almost 80 percent of high-tech executives said they wanted to improve service levels by bringing the production closer to demand.