What is nearshoring and its impact on companies

Nearshoring is now part of many companies’ strategies.

The process is not new in the post-pandemic scenario, although there is no doubt that the current global situation has accelerated the phenomenon after 2020.

The reconfiguration of value chains is therefore broad in scope, and its inception dates back to the period following the most intense years: a time when the search for the cheapest factors of production had pushed many organizations towards offshoring.

The current trend reversal has many facets, and nearshoring is just one of them.

In particular, the concept should not be confused with reshoring. Let’s see why.

The differences between nearshoring and reshoring

Nearshoring refers to the relocation of a company, or part of its activities, to a country close to that of the parent company.

Reshoring, on the other hand, represents a broader category of activity, which includes nearshoring itself. Indeed, the term indicates the generic relocation of activities to a country other than the one where they were originally moved.

The operation thus presupposes a previous relocation of an organization’s activities. In particular, reshoring may concern:

• The entire production of a company or a part of it (in the case, for example, of a product line).
• The supply of goods and/or services.

The category includes:

• Nearshoring, which we will elaborate on further in the rest of the article.
• Backshoring, which occurs in the case of relocation in the country of the parent company.
• Further offshoring, which involves relocation to a country even further away from the previous one.

Nearshoring: impacts on companies

What are the consequences for companies that choose to bring production or supply closer to home?

The choice can have both advantages and challenges. Let us look at them together.

The opportunities of nearshoring

A nearshoring operation has several positive aspects, including:

• Reduced supply risk due to a more diversified supplier base.
• Lower transport costs.
• Simplified logistics management, including custom procedures.
• Improved corporate image, e.g. by choosing carbon-neutral partners.
• Easier and more immediate communication with partners. Countries that are closer physically are often closer culturally as well, but not only that: the same time zone makes everyday activities such as video calls more immediate.

These aspects are the main reasons why many companies are also opting to relocate their operations to the European continent.

According to a 2021 survey by Allianz, out of about 1,200 multinationals based in the US, UK, France, Germany and Italy, “less than 15% of these would be considering bringing production back to their country of origin, while about twice as many might relocate some plants to neighbouring countries”.

Challenges to manage

As with any operation, there is no shortage of challenges.

Here are the main ones:

• Knowing the target market, both economically and culturally.
• Identifying potential partners with specific characteristics.
• Possessing risk management skills.
• Being able to develop and manage joint ventures or similar projects.
• Having the right budget to start the nearshoring project.

Let us now look at some ways to approach all of this.

Come sviluppare una strategia di nearshoring

La prima sfida che abbiamo elencato riguarda la conoscenza del mercato a cui si sta puntando per il ricollocamento delle produzioni o delle forniture.

Si tratta di comprendere le dinamiche di crescita (o contrazione) di settori, le loro specificità, il rischio connesso a specifici ambiti (l’accesso al credito, la situazione politica del Paese), usi e buone pratiche in ambito business e molto altro.

Un altro passaggio cruciale è rappresentato dall’individuazione dei partner corretti per sviluppare l’attività. Si tratta di svolgere una mappatura del mercato con cui isolare solo le aziende con specifiche caratteristiche.

Infatti, a prescindere dal fatto che l’operazione riguardi la produzione o la fornitura, ogni impresa dovrà trovare dei partner nelle nazioni oggetto del ricollocamento.

Vediamolo con un esempio.

Un’azienda specializzata in componenti in plastica per il settore automotive decide di avviare un piano di sostituzione degli attuali fornitori cinesi. L’obiettivo è ridurre i costi di trasporto, mitigare i rischi di blocco della produzione e utilizzare materie prime più sostenibili.

Definito un budget per portare a termine l’operazione, il management dell’azienda stabilisce i criteri che dovranno rispettare i nuovi fornitori europei:

• Localizzazione in Paesi vicino a quello di produzione;
• Presenza a catalogo di specifici componenti chimici;
• possesso di certificazioni di sostenibilità;
• capacità produttiva superiore a una soglia minima prestabilita.

Come essere certi di trovare le realtà giuste? Quali sono gli strumenti per ridurre i rischi da questo punto di vista? Ma soprattutto, c’è un modo rapido e accessibile per trovare i potenziali partner?

A single solution to facilitate nearshoring

At Matchplat, we have worked to find the answer to all these questions.

Returning to the example of the company specializing in plastic components, the first step concerns the selection of target markets.

In this case, the aim is to compare five European countries, then opting for the two with the highest concentration of companies.

Thanks to the matching of a database with over 425 million companies and web information, in Matchplat we can understand the concentration of companies with specific characteristics in different countries.

Then we add the selection of the best companies: after comparing Austria, Switzerland, Germany, Belgium and the Netherlands, it is a matter of identifying the companies that meet the pre-established requirements.

Germany and the Netherlands prove to be the most attractive destinations for sourcing raw materials. With Explore, it is also possible to isolate chemical component manufacturers that display the required sustainability certifications on their site.

Finally, one last piece of information is missing: the average annual production of the companies. This figure is crucial, as the number of suppliers to be found depends on it.

The current Chinese suppliers are in fact able to guarantee large quantities of product, and for each of them the company will have to identify several European substitutes, as companies in the sector in the EU are usually smaller.

Thanks to a survey given to the target companies by Matchplat’s specialists, the company is able to obtain the information so that only suitable companies can be contacted immediately.

Conclusions

We have seen what is meant by the term ‘nearshoring’, and how this phenomenon can affect both the production and supply of a company.

In both cases, nearshoring constitutes one of the forms of reshoring, the relocation of part of a company’s activities to a country other than the one where it had relocated.

In the case of nearshoring, the activity involves bringing production and/or supplies back to the company’s parent company.

The operation has advantages but also challenges that decision makers must take into account. The former include, for example, a reduction in transport costs and logistical complexities, while the challenges include the identification of new partners for the development of the business.

Indeed, it is not only necessary to focus on the most suitable countries, but also on companies with previously defined characteristics.

To find them in the most efficient way, at Matchplat we have combined Artificial Intelligence algorithms with a database of over 425 million companies in 196 countries. This makes it possible to identify the most suitable ones for your strategy, at affordable conditions.

But that’s not all: we also offer the possibility to get in touch with the best ones to obtain information not available online.

In this way, you can simplify and accelerate a crucial phase in any reshoring operation: that of analysing target markets and choosing the best partners within them.