Why Nearshoring Makes Sense Again

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In the rapidly changing world economy new business risks have emerged. Organizations are reassessing their decision to offshore production. New threats terrorism, unstable political climate, rising transportation and labor costs, pirates and intellectual property (IP) theft are factors that are driving manufacturers back home. With the increased risks that organizations now must cover are outweighing the once gotten gains.

 

Two of the main issues are IP theft and rising labor costs. With manufacturing going abroad in the past decade the organizational risks are outweighing the costs savings. Rising manufacturing and labor costs in China, the rising awareness of human trafficking, child labor and in some extreme cases captive labor are forcing organizations that manufacture abroad to return home. Public consciousness and environmental preservationists have taken a stand by not purchasing their products which has diminished the bottom line while production costs have steadily risen. The risks and public perception has become to costly to sustain. If a company partakes in these inequitable business practices once discovered is not only a PR nightmare and also usually decreases revenues.

 

The threat of pirates on the open seas seems like a movie but have become reality and forces organizations to plan ahead and having contingencies in place if and when this should happen if a container ship is held for ransom. This leads to excessive outlay of cash, inconsistent and excessive lead times, increase in price, decreased customer service which will impact the bottom line. Organizations are shifting production from China to other parts of the Pacific Rim with more stable political climate and still cheaper labor costs. Although this adds a little stability the costs will still continue to rise as these countries will charge organizations what they can due to what China is able to do.

 

Some of the reasons why organizations are returning home is mainly the control. In many cases organizations have suffered from IP theft and bootlegging. Organizations have little control as to how their IP is being treated and executed. The risk for leaked proprietary information and manufacturing processes can easily compromise a western based company as knockoffs appear and causes inferior quality of products being introduced into the marketplace. All of which decrease profits and causes organizations to lose its competitive advantage. If organizations can keep their processes and IP guarded organizations can continue to reap the benefits of their own innovation. The advent of 3D printing has also caused organizations to realize quick prototyping without the tremendous retooling costs and decreased production time. This advance has decreased time to market and organizations can easily make changes without significant costs and time delays which was previously the case.

 

Educated workforces are now very common in North America and a large pool of labor is available from many disciplines and manufacturing techniques. In the states and provinces that may be hard hit due to an industry foreclosure has produced abundant labor and expertise which manufacturers can leverage.

 

These are some of the main reasons why organizations are bringing home their manufacturing back to north America. The changing economic landscape of freer trade and new partner alliances will foster larger manufacturing growth here in North America. It will be interesting to see if these trends continue and how it will impact prices for manufactured goods for both B2B and B2C customers.

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