With globalization no longer the default option for all companies, many are returning product manufacturing from foreign countries to their home countries (reshoring); transferring work to different organizations within their own regions (nearshoring); and relocating business processes from one country to another (onshoring).
Mexico has become a particularly attractive target for U.S. firms. In November, the country’s Economy Minister, Raquel Buenrostro, announced that 400 different companies were currently seeking nearshoring opportunities in the country. She credited the U.S.-Mexico-Canada Agreement (USCMA) and Mexico’s close proximity to the United States with driving some of that momentum.
Regardless of which repositioning approach a company takes—reshoring, nearshoring, onshoring, or a hybrid—the general push to get manufacturing and sourcing closer to home is on. In fact, one recent Deloitte study uncovered “increased interest in moving manufacturing closer to the end consumer to mitigate disruption risk and the inflationary impact on the cost of goods.” In total, American companies reshored about 350,000 jobs in 2022, the company says, compared to 260,000 the prior year.
In the United States, CEOs have been vocalizing their reshoring goals on their earnings calls. During the fourth quarter of 2022, for example, there were 122% more mentions of reshoring than there were during the previous quarter. Fortna’s Darren Jorgenson says it’s a topic he’s also hearing more of these days. “Reshoring is something that comes up every time we work on a project and design a supply chain,” says Jorgenson, practice leader of the strategy team. “We’re seeing some instances where manufacturing is moving into Mexico, which is a solid business choice for some companies.”
Rosemary Coates, executive director of the Reshoring Institute and president of Blue Silk Consulting, says many companies have already taken the interim step by seeking out more U.S. suppliers to add to their supply chains. “In the past, sending a buyer to China or sourcing products on sites like Alibaba kind of just happened automatically,” says Coates. “Now, more companies are trying to source materials domestically and are very interested in reducing risk in their supply chains.”
Coates says some of these moves are being driven by all of the misery that companies endured during the pandemic as they tried to get goods out of China. “There is a bigger recognition of the related supply chain risks,” says Coates, “and to mitigate that, companies are redeveloping sources back in America. That is the interim step.”
Other organizations are going a step further and either bringing manufacturing back to the United States or making decisions to not produce goods overseas anymore. “There’s no question in my mind that this is happening right now at a slow and steady pace,” says Coates.
Slow and steady pace
In most cases, Coates says a company’s decision to reshore, nearshore or onshore happens at the executive level and is seen as a “much more strategic decision” than it ever was in the past. This aligns with a bigger shift in the way organizations think about their global supply chains and the strategies associated with these interdependent networks.
“There’s a whole shift in the way companies are thinking about their global supply chains and the related strategies,” says Coates. For example, she says more of them are considering moving operations to Mexico, where labor rates are now lower than they are in China, according to a recent Reshoring Institute global labor study across 12 different countries. India and Vietnam are two other low labor-cost countries that companies may want to consider.
“Mexico is always a good choice due to its close proximity to the United States. You don’t have to wait for an ocean container to be unloaded at a busy U.S. port,” says Coates. “Instead, you can just drive across the border.” As an added bonus, the USMCA allows much of the merchandise produced in Mexico to be brought into the United States duty-free.
