Strategies and Benefits of On-shoring and near-shoring
Updated: Mar 6
The trend toward off-shoring gained steam during the 1970s and seemed unstoppable by the '90s. In many industries, it became quite difficult for businesses to stay competitive without shifting their manufacturing overseas. Some major corporations also pressured suppliers to embrace off-shore production, according to The Week. Companies benefited from lower overseas wages and less restrictive government regulations. The off-shoring trend remained strong until at least 2012. However, current events have forced many firms to rethink this strategy. Trade wars, COVID-19, and other disruptions made overseas manufacturing less attractive.
Nearly 80 percent of U.S. manufacturers with plants in mainland China recently moved at least some production back to the United States, according to Kearney. Large corporations like Intel, Boeing, GE Appliances, Apple, and Caterpillar have started to favor on-shoring. In addition to supply chain struggles, rising overseas wages and business expenses contributed to this trend. Increasing fuel prices boosted the cost of shipping as well. Some companies have compromised by adopting a strategy known as near-shoring. They choose to manufacture goods in the Western Hemisphere rather than Asia or Eastern Europe.
Major Benefits of On-Shoring
While the expenses associated with off-shoring have risen, some businesses still prefer this approach solely because of lower labor costs. However, on-shoring becomes more compelling when you consider all of its advantages. Many customers favor American-made items; they believe that these goods offer superior quality and support well-paying jobs. Consequently, products may sell more easily or fetch higher prices if your company manufactures them domestically. The value of this benefit varies depending on the type of merchandise. People pay more attention to the country of origin when buying costly or complex items.
Like many consumers, the U.S. government strongly prefers to purchase American-made goods. It's particularly important to consider on-shore production if your business plans to sell products to government agencies. These organizations often pay generous sums for vehicles, machinery, tools, office furniture, computer equipment, and a wide range of other items. Regardless of who buys your goods, the government increasingly incentivizes some types of domestic manufacturing (such as semiconductor production). Likewise, federal trade tariffs have made it more expensive to import numerous items in recent years.
The government and many customers want companies to reduce their environmental impact. When manufacturers produce goods overseas and sell them in the United States, they must transport these products thousands of miles using ships and airplanes. Many items reach the West Coast only to embark on lengthy truck or train journeys. Long-distance transportation typically results in a massive carbon footprint. On-shoring represents an effective solution to this problem. Goods travel far fewer miles from factories to stores. Companies also avoid producing merchandise in countries with especially lax environmental regulations.
It's not always easy to communicate with manufacturing personnel in distant lands. Vastly different time zones can result in much longer waiting times before you receive responses to your inquiries. In addition, language and cultural differences often make communication less clear. Another problem is that visiting an overseas factory is more costly and time-consuming. On-shore manufacturing lets executives tour facilities regularly, giving them a chance to discover major issues involving safety, quality, or efficiency. Greater oversight has the potential to prevent serious harm to a company's reputation and finances.
When you consider the high costs associated with research and development, it's crucial to safeguard your company's trade secrets. Otherwise, a competitor could create copies of your products and be able to sell them at lower prices because it didn't spend money to develop them. Intellectual property can fall into the wrong hands in any part of the world. However, off-shoring frequently makes it challenging for businesses to protect these secrets. It's harder to control IP and difficult to prosecute violators overseas. For example, India's laws provide relatively weak protection of intellectual property.
On-shoring helps to minimize supply chain disruptions. When companies manufacture goods off-shore and use materials from several different countries, there's a greater risk that something will disrupt production or shipping. Examples include natural disasters, war, violent protests, blockades, virus outbreaks, energy shortages, and infrastructure failures. Most of these calamities have become increasingly common during the last decade. If a product travels 8,000 miles from the factory to a retailer, it's much more likely to run into problems along the way. Recent events in China, Taiwan, Lebanon, Ukraine, Myanmar, and Haiti highlight these risks.
Even when products and materials eventually reach their destinations, long delays can significantly reduce their value. Retailers need the right merchandise to satisfy seasonal customer demands and accommodate current trends. They don't want to stock shelves with wool sweaters in June. Food and health products may expire before or soon after they arrive. Some stores have had to heavily discount late items to free up space for more popular goods. On-shore manufacturing helps suppliers meet today's needs by avoiding costly delays. At the same time, shorter distances cut shipping expenses.
Advantages of Near-Shoring
A compromise may yield better results in certain situations. Near-shoring involves shifting production to countries in the same region, such as Mexico. This strategy decreases a manufacturer's environmental impact and shipping costs to some extent. It also reduces supply chain vulnerabilities. A nearby time zone improves communication, especially when products come from an English-speaking nation like Canada, Jamaica, or Belize. Nevertheless, near-shoring doesn't provide all of the same benefits as on-shoring. Tariffs usually still apply, and businesses can't attract more customers by advertising American-made goods.
To sum it up, on-shoring and near-shoring help companies deliver products reliably while reducing emissions and logistical expenses. Some firms find that "right-shoring" works best. This approach involves moving some production to the United States while continuing to manufacture certain items overseas. Regardless of what strategy you adopt, you can rely on us to help you make adjustments as smoothly as possible. Our company offers a variety of dependable freight forwarding, warehousing, trucking, and supply chain management services. Please contact us today to learn more about our domestic and international shipping solutions.