While nearshoring to South America is a big topic of discussion among large businesses, the mid-market economy is also regarding the benefits of outsourcing manufacturing to foreign entities.
Cost is often highlighted as the main reason why companies choose to procure items from other countries, but mid-sized enterprises also focus on several residual benefits. Close proximity to domestic markets and the ease with which intellectual property can be protected are just two of these advantages, The Wall Street Journal noted.
Bolstering long-term strategies
IndustryWeek contributors Amar Shah and Danielle Moushon noted a survey of C-suite executives working at mid-market businesses conducted by The Keystone Group, which found that commodity pricing wasn't necessarily their greatest concern. In regard to expenses, respondents typically weighed the pros and cons associated with certain liabilities.
For instance, quality control, hidden logistics grievances and risks, duplicative management and lead times were top of mind for many participants. In addition, nearshoring initiatives are intensely motivated by factory proximity to raw materials and skilled labor.
The fewer assets that are needed to transport goods to production facilities, the less risk involved with transportation. A similar concept applies to the workforce: The more knowledgeable employees are in certain manufacturing techniques, the better procurement management professionals will be able to measure quality.
Weighing risk and insurance
One of the disadvantages of offshore production is that it's difficult for personnel to keep track of every indirect supplier relationship. Sourcing officers need to be cognizant of a number of risks, such as natural disasters, crime, long-term management fluctuations, shifting political climates and other factors.
This is when the appeal of nearshoring to Mexico and other South American countries grows considerably. For one thing, North American enterprises are likely well aware of conditions outlined in the North American Free Trade Agreement, which translates to political understanding. Secondly, proximity to these nations means that some domestic insurance companies may cover logistics partners that frequently cross the U.S.-Mexico border.
As was mentioned above, access to raw materials is a key differentiator in nearshoring. For example, if a company procures tungsten and other rare elements from Africa, it logistically makes more sense to deliver those products to a factory in the Caribbean or Mexico as opposed to China. If it chose to transport goods to the latter country, distributors would have to rendezvous several times.
Simplification is the key to success. The more complex the supply chain, the more difficulties and risks exist.