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By: Dr. Alejandro Diaz-Bautista, Economist and Researcher (PhD).
Nearshoring has become a significant trend in global supply chains, driven by the need for resilience and risk diversification. Eastern Europe serves as a case study for successful relocation. Countries like Poland offer lower labor, transportation, and energy costs compared to Western Europe. Its well-developed infrastructure, including efficient rail connections and modern ports, makes them attractive for manufacturing and supply chain operations.
The strategic location of Eastern Europe at the crossroads of Europe, Asia, and the Middle East positions it as a natural gateway for trade. This advantage, combined with European Union membership, creates a conducive environment for logistics and distribution centers.
Emerging Nearshoring Destinations.
Beyond Europe, countries like Mexico, Brazil, and Costa Rica are top nearshoring destinations due to competitive labor costs, skilled labor, and proximity to the United States. The competition between the United States and China continues in 2024. Amid the rivalry between major economic powers, U.S. policymakers and companies are diversifying supply chains to serve the Americas. This move aims to reduce dependence on China and enhance economic security.
What are the challenges of Nearshoring?
While nearshoring is advantageous in many ways, it also presents several challenges. Cultural differences can be challenging. Working across different cultures can lead to misunderstandings, communication gaps, and clashes in work styles. Companies must invest in intercultural training and sensitivity to bridge these gaps.
Language differences can hinder effective communication, affecting collaboration, productivity, and quality.
Nearshoring destinations may have less developed infrastructure, impacting transportation, storage, and distribution. Companies must assess logistical capabilities and invest in necessary improvements.
While nearshoring aims to leverage pools of skilled labor, some regions may face shortages of specific expertise. Companies must assess workforce availability and invest in skill development.
Relocating to politically unstable regions poses risks related to sudden policy changes, social unrest, or geopolitical tensions. Companies must assess stability and diversify risk.
While nearshoring reduces costs compared to offshoring, fluctuations in exchange rates, inflation, and labor costs can affect profitability.
Building and maintaining strong relationships with nearby suppliers is essential. Companies need to manage expectations, monitor performance, and address any issues promptly.
Protecting intellectual property, confidential data, and cybersecurity becomes crucial when operating in a new location. Compliance with data privacy laws is essential.
In conclusion, nearshoring requires careful planning, adaptability, and a proactive approach to overcome these challenges and reap the benefits of a resilient supply chain.
*Dr. Alejandro Diaz Bautista, International Economist and Research Professor in International Economics at El Colef. Visiting Fellow and Guest Scholar at the Center for U.S.-Mexican Studies based at UC San Diego’s School of Global Policy and Strategy (GPS).*
