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Nearshoring vs. offshoring: What works best?

Manufacturing community being build in front of a lush green mountain in Mexico.
05 Jan 2015

When choosing to move manufacturing outside the country, one has to take into consideration what is needed for the business. The reason for that is not every country is ideal for a particular form of production. Some countries have lower costs, while others have more skilled labor. These differences are crucial when attempting to manage low-cost manufacturing. Manufacturers should consider working out the difference between offshoring to a distant location and nearshoring to a country closer to home. The difference between the two can be quite stark overall, which can make an major impact on long-term business viability.

Going away or staying close
As the names imply, while nearshoring and offshoring are basically the same thing, nearshoring corresponds to setting up a business in a bordering country or place within the general region. That includes manufacturing in Mexico and technical support in Canada. On the other hand, offshoring generally refers moving operations outside of the region to a faraway nation. That includes factory work in China or IT support in India. The difference between the two is usually based on labor costs, culture, skilled manpower and equipment use. Sometimes, the location for offshoring can have neighbors with completely different benefits. What it really boils down to is what purpose would moving operations serve for a manufacturer. A study from the University of Bergamo concluded that business factors played the primary role in where a person set up shop.

When it comes to manufacturing, the nearshoring vs. offshoring options are quite obvious as Mexico and China. While China offers a more extensive level of manpower and lower labor costs, Mexico offers better skilled labor, especially in recent years as The Economist notes. The shift from low to high-end manufacturing has made the latter a distinct offering from the former.

With offshoring, the key benefit is cost efficiency, according to GCP Industrial Products. While wages have increased significantly in the Yangtze River Delta, they are still incredibly low in comparison to other countries. They also run employees on a rotating shift 24 hours per day, seven days per week excluding certain holiday weeks. On the other hand, with nearshoring, you can communicate directly with the maquiladora in Mexico because it's in the same time zone. It also yields a similar work and social culture that isn't marred by distance, which makes setup quick and efficient. Plus, lower travel costs and less overall risk can make nearshoring a more attractive choice for many.

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