The trend of re-shoring picked up rapidly after the onset of the COVID-19 pandemic, with 800,000 manufacturing jobs re-shored from 2020 through 2022. Now, near-shoring is viewed by many businesses as an effective way to future-proof operations and lessen reliance on China, while mitigating risk and increasing speed to market.  

As the near-shoring movement gains popularity, what are the key considerations for businesses weighing up its many benefits and challenges? 

Selecting a Prime Near-Shoring Destination 

Choosing the right location is critical to the success of near-shoring operations. When selecting a location, companies must consider factors such as labor availability, labor costs, infrastructure, regulatory environment, and proximity to the home country. For example, German automotive supplier Bosch moved its manufacturing operations to the U.S. in 2022 after facing pandemic-induced supply chain issues. This enabled the company to cut down on transportation, inventory costs and lag times. 

When selecting a near-shoring destination, it’s important to be mindful of the location’s political landscape and any geographic disruption that may pose risks to operations. Mexico has recently emerged as a popular location for near-shoring operations, particularly among American companies, with businesses coveting its close proximity to the U.S. and the skilled, yet cost-efficient workforce. However, the country’s unique political landscape must be a key consideration when selecting a location for operations. 

In another example, Russia’s invasion of Ukraine impacted everything from resource availability to fuel costs and more, making it difficult for companies to re-shore their operations. Policy decisions and geopolitical events, while often tough to predict, can introduce new challenges, threaten supplier resources and pose risk to supply chains.  

Building Trusted Supplier Relationships 

Strong relationships with trusted suppliers in the near-shore destination are crucial to enabling resilient supply chains. Having strategic suppliers with established trust on your side has proven to be invaluable for many businesses during challenging economic and political times, such as the pandemic, the energy crisis and various geo-political conflicts.  

Close supplier relationships transform suppliers into trusted partners, allowing them to collaborate and co-create. Bringing strategic suppliers into product innovation and design, as well as supply chain planning and sustainability projects, can offer benefits for years to come.  

An important way to build trusted supplier relationships is setting up transparent, mutually aligned performance goals. When buyers and suppliers work toward agreed performance goals together — by sharing data, insights, and ideas — risks decrease, innovation opportunities are uncovered, and costs are optimized. For example, in the pharmaceutical industry, where companies license technologies and utilize those capabilities, gain-sharing arrangements can be put in place that encourage partnerships and deliver benefits to both the buyer and supplier.  

Ensuring the Right Supplier Mix 

While strong and trusted supplier partnerships are fundamental to any near-shoring strategy, it’s critical not to rely too heavily on one or a few relationships. In fact, businesses that not only have the right supplier partnerships, but also a diversified mix, maximize their chances of near-shoring success.  

Another practical strategy to adopt when near-shoring is analytics-driven supply chain monitoring, which has proven to be a necessity in all operations. Having access to ongoing insights into suppliers of suppliers and emerging demand-supply situations allows for companies to see the bigger picture, analyze details, and take appropriate action. Organizations using analytics-driven solutions are generally more successful in managing disruptions in their supply chains, which is of utmost importance when operating in a high-risk environment.  

Weighing Added Costs Against Long-Term Gains 

Near-shoring strategies can help de-risk supply chains and bring predictability and stability back to operations. However, it comes with a particular set of challenges that companies must address. For example, the prospect of “undoing” years spent creating global, complex supply chains to move operations closer to home can be both costly and time-consuming.  

Upfront costs of set up, supplier certifications and more can add up and are often a tough pill to swallow. Additionally, given the inevitably higher costs of the different inputs (not least of which is labor) in near-shore territories, sourcing will almost always come at a higher base cost — especially for western organizations. 

Leveraging Near-Shoring for a Sustainable Future 

Near-shoring can offer businesses a strategic approach to growth and sustainability. It can bring a much-needed level of consistency and peace of mind to sourcing strategies, giving teams a foundation they can rely on as they ramp up their post-pandemic operations.  

Near-shoring operations isn’t a choice organizations should make reflexively or lightly. It’s critical to look internally at business goals and externally at the market to make an informed decision based on numerous considerations. As near-shoring continues to grow in popularity, it's essential, therefore, for businesses to navigate this practice strategically to reap potential benefits. 

Omer Abdullah is co-founder of The Smart Cube.