How Has Nearshoring Impacted the U.S. Economy?
In recent years, reliance on global supply chains has led to increased risks.
Not only for U.S. companies but our economy as a whole.
Nearshore outsourcing is the suggested solution from the White House. But with that comes the debate about how realistic an option it is.
Which is why you’re here.
Because you desire every advantage in the marketplace for your company. Is moving resources to another country the right move?
We’ll lead you to a more informed answer shortly!
What Is Nearshoring?
First, let’s quickly define the terms.
- Moving part of your operations to a nearby country makes you a “nearshore” company
Your top goal is to improve business processes by limiting the time zones that you operate in. Increasing the efficiency and productivity of your operations.
We need to differentiate it from the next term.
- “Offshoring” refers to partnering with suppliers around the world to lower costs
Next, we’ll address the pros and cons of being geographically closer to your original company.
Benefits and Challenges of Moving Production Closer to Home
Using a nearshoring partner provides many benefits. Let’s first look at the regional perks to nations.
In 2022, the United States increased trade with Mexico. Canada also experienced a bump courtesy of this outsourcing model. Both saw over 20% growth!
China was third at about 11%.
Free trade agreements between the countries will also likely be strengthened soon. The root cause is subsidies from the White House for:
- Batteries for electric vehicles
Manufacturers in our own country will heed the call. And enter new markets among our neighbors.
Countless industries have adopted nearshoring. But some are better suited for it than others.
Continue reading for two examples.
Are There Any Specific Industries That Are Particularly Well-Suited for Nearshoring?
Apple and China have well-publicized ties.
But that relationship is feeling some strain. Mainly because of tight U.S. export controls on computer chips.
It’s led Apple to adjust its manufacturing to rely less on Chinese buyers.
Two industries that are natural choices for nearshoring:
- Electric vehicles (EVs)
- Software development
We previously mentioned the White House granting subsidies for EV batteries. So, we’ll spend more time on computer technology here.
You probably didn’t know that Mexico was the top source for U.S. business in high-tech last year. Surprising as that is, there’s an easy explanation.
Many companies are sending fewer integrated circuits and processors to China. And more to our Southern neighbor who’s in closer proximity.
It didn’t take long for this move by the government to make an impact.
Each market in Canada and Mexico is reaping the benefits of more high-tech exports from the U.S.
You’ve reviewed a couple of examples and now we’ll move to practical benefits.
What Additional Benefits and Challenges Can U.S. Companies Expect When Nearshoring in 2023 and Beyond?
Two countries conducting business using a close-by supply chain enjoy numerous benefits.
Reasons to use nearshoring:
- Fewer time zone differences
- Decreased language barriers
- Lower labor costs
- Higher quality products
- Reduced logistics costs
- Less cultural differences
Improved control over operations and communication also make profitability more likely.
Beyond control, nearshoring teams in other countries expose a company to additional skilled workers.
Supply chains see less lead time as a result of these fresh perspectives. And the process of quality control may improve as well.
Fewer cultural discrepancies drive business centered around a desire for similar products. Consumers of automobiles for example, like Canada as a market to make purchases from.
For one, because there’s less red tape for their purchase. But also because styles don’t vary as much. Compared to other foreign markets.
Moving away from benefits, let’s look at how nearshoring and international trade law can work together smoothly.
International Trade Law Implications
An offshore company can provide low labor costs for a U.S. business. But having outsourced employees presents other issues.
Like language differences. This could negatively affect customer service.
Beyond that, both offshoring and nearshoring must satisfy international trade law.
What Are the Implications of International Trade Law for Companies Who Are Nearshoring Production?
Strong ongoing support from the U.S. government is key. Without it, becoming a nearshoring company may be tough.
At this time, increased trade with partner countries should decrease costs for your company.
But if inflation doesn’t improve, tighter federal budgets might limit policy support for nearshoring and offshoring.
What Advice Do International Trade Lawyers Have for Businesses Considering Nearshoring Production in the Next Few Years?
COVID forever changed how we do business.
Outsourcing became less appealing. And businesses turned to regional logistics partners.
It can be difficult to reshape a supply chain following this nearshoring model. Plus it’s very expensive.
Standing out requires not looking like most companies. But in this case, moving a portion of operations to Canada or Mexico could be smart.
We saved the best for last. To wrap up, we’ll be exploring how to comply with export regulations.
Export Compliance Implications
Isn’t red tape the best? Just kidding, we know it isn’t your favorite.
Regardless, exporting products requires adhering to compliance rules. Because you don’t want any interruption to business operations.
How Can Manufacturers Ensure That They Are Compliant With Export Compliance Regulations When Moving Production Closer to Home?
Bringing manufacturing closer to the U.S. border lowers lead times and improves overall communication. It also grants you access to a larger talent pool.
Just make sure you understand regulations around exports. Not the whole manual of course, just the most important points.
Since we’re on the subject. Your manufacturing operations will be protected if you work with an international trade lawyer.
What Steps Should Businesses Take To Protect Their Intellectual Property When Nearshoring Production?
One risk with outsourcing is extra exposure to cyber criminals. Or stolen intellectual property.
Your company can prevent these events using 3 safeguards:
Nearshoring is a great tool. But first you need to defend your manufacturing process and other assets.
To conclude, we want to introduce you to an ally in making this model work for your company.
Reidel Law and Nearshoring Assistance
You probably don’t have time to decipher the “legalese” around nearshoring.
Naturally, this is an assumption. But it’s based on discussions with our customers.
We can help you handle the legal aspects of any export issues. It is our specialty after all.
Plus, it removes the need for any sort of course on these topics.
Our international trade law division also supports:
- Import Compliance
- Litigation before the Court of International Trade (Section 337, anti-dumping/countervailing, and other trade-related cases)
- Trade Compliance Audits and Training
Reach out to see how we can help improve your supply chain through nearshoring!