Nearshoring, or the practice of moving your business to a nearby country, offers several benefits that can help boost your firm’s growth. However, you should determine if nearshoring is right for you before shifting your business operations.
Fortunately, from Boeing to Whirlpool, there are many nearshoring examples to help guide companies who want to explore nearshoring.
In this article, we’ll highlight four popular nearshoring examples and some industries that are widely used for nearshoring. We’ll also discuss the difference between nearshoring and other business processes and help you decide if it’s right for your needs.
This article contains:
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- 4 Popular Nearshoring Examples
- 4 Major Industries Suitable for Nearshoring
- What is Nearshoring?
- 3 Key Advantages of Nearshoring
- Is Nearshoring for You?
Let’s get started.
4 popular nearshoring examples
Nearshoring is a business approach in which the firm moves certain tasks like customer services, manufacturing, marketing, software development, etc., to a neighboring country.
(We’ll explore more about nearshoring later in the article.)
Several brands have nearshored their business successfully. Let’s look at a few popular ones:
1. Inditex
Inditex is a Spanish apparel company. It’s the parent company of Zara, one of the biggest fashion brands in the world.
According to sources, Zara nearshored about 10% of its production to Morocco and Turkey.
And like Zara, an increasing number of apparel companies are nearshoring — procurement executives expect over 20% of their sourcing volume to be nearshored by 2025.
2. Whirlpool
Whirlpool is an American multinational manufacturer and marketer of home appliances.
The company nearshored operations to Mexico in 1987.
The Mexican facility exported 80% of the machines (like refrigerators, washing machines, compact refrigerators, and stoves) to the USA and Canada.
After Whirlpool, other electronics companies like Samsung and LG also successfully established nearshoring manufacturing units in Mexico.
3. Boeing
Boeing is an American aerospace company that designs, manufactures, and sells airplanes, satellites, rockets, telecommunication equipment, and missiles.
The aerospace giant outsources its wiring to French multinational company Safran, the world’s third-largest aerospace provider. Safran has been operating in Mexico for 25 years and inaugurated a new facility in Chihuahua in 2020.
Boeing decided to nearshore its aircraft wiring plant to Mexico in 2020.
As of 2020, the Safran plant in Mexico produces 95% of the wiring on the Boeing 787 Dreamliner, alongside wiring for other aerospace companies like Airbus.
4. Toyota Motor
Toyota Motor is a Japanese automotive manufacturer selling its products in different parts of the world.
The company nearshored its second production unit to Thailand in 1996 — today, it runs three plants in Thailand. It also has manufacturing operations in Thailand, Indonesia, India, Venezuela, and many other countries.
Mitsubishi, Honda, Suzuki Motors, and Tata Motors are other companies that have nearshored to Thailand.
4 major industries suitable for nearshoring
According to a survey conducted by Statista, nearshoring businesses generated about $26 billion in revenue in 2019.
Some of the major nearshoring industries contributing to this growth are:
1. IT nearshoring
IT (Information Technology) nearshoring refers to relocating a company’s information technology-related tasks to another country in their geographical proximity.
Many western companies nearshore their IT services to Central or Latin America. You can also find high-quality IT services in Brazil (in Central America) and Mexico (a Latin American country).
And the most popular IT nearshoring destination in Eastern Europe is Ukraine, followed by Poland and Romania.
Moreover, the nearshoring IT industry is booming. According to Statista, the IT outsourcing service sector in Poland (an Eastern European country) will reach $2311.72 million by 2021.
However, you should be vigilant while you nearshore your IT services.
Make sure that each software developer is fluent in English. This can help you and your nearshore team communicate smoothly and establish a strong relationship.
2. Call center nearshoring
Call center nearshoring involves moving a firm’s customer support or call center operations to a nearby country.
Many American companies like IBEX and Uber, etc., nearshore their business to Jamaica and Costa Rica. Amazon has also nearshored its engineering, back-office work, and software support along with customer care services to Costa Rica.
3. Pharmaceutical nearshoring
Some pharmaceutical companies nearshore their manufacturing processes to neighboring countries within their timezone.
For example, several US pharma companies have opted to nearshore their manufacturing processes due to increased production expenditure in their home country.
Medtronic – a renowned medical equipment supplier, had nearshored one of its plants to Mexico in the 1970s. Later, medical manufacturing giants like Avail, Cardinal Health, Gambro Avantti MediClear, and Welch Allyn have also nearshored manufacturing to Mexico.
4. Automobile nearshoring
Automobile nearshoring involves moving your automobile manufacturing or other processes to a neighboring country.
Automobile nearshoring in the USA had started way back in 1925 when Henry Ford built an automobile manufacturing facility in Mexico. Other leading automobile companies like Nissan, GM, and Volkswagen also nearshored their manufacturing to Mexico.
Today, the USA imports 75% of vehicles exported from Mexico, according to the ITA (International Trade Administration).
Now that we have covered several examples of nearshoring, let’s understand more about nearshoring.
What is nearshoring?
Nearshoring involves shifting your company’s business operation to a nearby country. It also includes outsourcing company operations to a third-party vendor in a neighboring country — known as nearshore outsourcing.
When you nearshore a part of your company, your employees will still do the entire operation. However, when you outsource to a third-party vendor, you’ll have to deal with a different set of employees.
Difference between nearshoring and other business approaches
In addition to nearshoring, you also have business models like offshoring, onshoring, and outsourcing.
Let’s look at how they differ from nearshoring:
1. Outsourcing
Outsourcing involves hiring another company to complete your tasks like accounting, customer support, software development, marketing, etc.
There are three outsourcing models:
- Local outsourcing: The company you hire will be from your home country.
- Offshore outsourcing: The company you hire is from a distant country in a different time zone.
- Nearshore outsourcing: The company you outsource to is from a nearby country.
All these models aim to shorten the supply chain and increase business growth.
According to a study conducted by Statista, the global outsourcing market amounted to $92.5 billion in 2019.
However, outsourcing has a few limitations, such as:
- Lesser process monitoring: You may not be able to closely observe the development process or suggest any required changes in the short term.
- Increased security threats: You’ll have to double-check your outsourcing partner for compliance with intellectual property and cybersecurity regulations.
- Lack of task perfection: Your outsourcing partner may miss out on something relevant as they aren’t used to your brand.
2. Offshoring
Offshoring involves shifting a particular process of a company to a distant country. Usually, an offshoring destination reduces the cost of your business operations.
For example, moving your France-based software development company operations to a distant location like India or the Philippines is known as offshoring.
Offshore software development, accounting, bookkeeping, customer support, etc., are in high demand.
However, the amount of money spent on offshoring has reduced between 2018 and 2020.
Why?
Offshoring services have a few disadvantages when compared to nearshoring.
Some of its disadvantages are:
- Different time zones: The time zone differences may disrupt communications between your remote and offshore teams.
- Communication barriers: Your offshoring service provider may not be very fluent in English or other preferred languages, which can cause communication issues.
- Cultural differences: Your offshoring service provider may follow a very different culture, making it hard for you both to understand each other.
3. Onshoring
Onshoring is the extension of a company to another region within the home country. It’s also the moving back of a firm’s operations from another country to its home country.
For example, let’s say you’re an American company. If you bring back the business of your tech company from China to within your national borders, it’s called onshoring.
Here are the disadvantages of onshoring:
- Expensive: Labor cost, office supplies, infrastructure, taxes, etc., could be higher in your home country.
- Restricted talent pool: The candidates in the area you hire from may not have all the core competencies or business skills required to complete tasks.
- Takes time: Onshoring (can take time as you may have to recruit a team of professionals yourself.
3 key advantages of nearshoring
Nearshoring services have several advantages that can help you grow your business.
Some of them are:
1. Cost reduction
Nearshoring can save you a lot of money as you’ll be shifting to a country where the cost of living is lower than your home country.
You can nearshore software development and other services to developing countries where the labor costs are lower. This way, you may get a higher profit.
Additionally, you may not have to spend money on job advertising, hiring, and onboarding processes if you outsource to a nearshoring partner.
2. Save energy and time
Your employees will have to invest time to develop an in-house or remote team, including hiring and training processes.
Instead, your employees could use the effort they spent on building an in house team to complete core business tasks such as meeting clients, managing money, going on business trips, etc.
By nearshoring services, your employees can concentrate on core products — which can help grow your business.
Moreover, with productivity management tools like Time Doctor, you won’t have to travel to your nearshore company to check how your external team is performing.
Time Doctor also allows you to track the total hours they spent on a project, generate accurate productivity reports, and offers many other helpful management features.
3. Ease of communication
You may find it difficult to converse with employees from an offshore company due to language issues and time zone differences.
On the other hand, your nearshoring employees are more likely to be aware of your culture, speak your language, and share your time zone. This way, you can plan and execute processes conveniently.
Additionally, you can also easily travel to your nearshore partner without spending too much time or money. This means you’ll be better prepared to handle emergencies.
Is nearshoring for you?
Before nearshoring, you should ensure that your business and team are ready for the change. You should choose your nearshoring location after careful consideration.
Let’s look at a few signs that could indicate you should nearshore your processes:
1. Difficult to hire the right talent in your country
You can consider nearshoring your business when you can’t find a workforce of required talent at a lower cost.
According to a study conducted by Manpower Group, Swedish companies find it more challenging to hire in their own country as compared to hiring abroad.
So out of the surveyed software development companies in Sweden, 5% offshore software development and 9% nearshore software development.
2. Increase in operating cost
The cost of operating a business can be higher in your country due to its cost of living.
You may have to pay more for labor, office space, electricity, and other resources if your country has a strong economy.
For example, a business owner in Western Europe may not find a suitable software development team with core tech expertise due to the high cost of labor in the region. But they may be able to easily hire in Eastern Europe — where the labor cost is lower.
By moving your services to a nearshore location, you can ensure your business is profitable.
3. Too much workload
Your team may not be able to handle certain tasks due to a lack of expertise or a hectic schedule. In such cases, you can outsource tasks to nearshoring companies that can complete them on time and with perfection.
However, you should evaluate the capability of the nearshoring firm before you outsource work.
You should ensure that the nearshoring company understands your brand image and maintains certain standards.
Wrapping up
Nearshoring your business process at the right time and to a suitable country can boost your company’s growth.
And successful examples of nearshoring businesses can guide you on this journey. You can also use the tips explained in this article to decide whether you need to nearshore and how to go about it.
Andy is a technology & marketing leader who has delivered award-winning and world-first experiences.