Managing Risks in Domestic Production with North American Neighborhood Sourcing
Nearshoring Boom: Why Manufacturers are Flocking to North America
The trend of nearshoring, or moving production operations closer to consumer markets, is surging, with the U.S., Canada, and Mexico becoming the preferred destinations over Asia. Here's why:
The Post-Pandemic Shift
The COVID-19 pandemic disrupted supply chains worldwide. As nations temporarily halted traffic and labor force, manufacturers started reassessing the benefits of offshoring, leading to an increased interest in nearshoring.
Supply Chain Efficiency
By land transportation instead of ocean vessels, nearshoring reduces overall transportation time and decreases exposure to port congestion delays.
Easier Oversight, Quality Control, and Safety
Nearshore operations are easier to oversee, ensuring regular quality control and safety checks. The similar time zones of North American countries make communication more convenient.
Cost Savings
While nearshore labor might be more expensive than offshore workforces, it's less costly than domestic production due to lower relative wages and government incentive programs.
Fewer Language Barriers
Thanks to the large Hispanophone talent pool and Spanish being the most spoken language other than English in U.S. homes, nearshoring in Canada and Mexico can strengthen supplier relationships and streamline operations.
IP Protection
North America offers better protection for intellectual property compared to some offshore locations, particularly China.
Nearshoring Challenges
Despite its benefits, nearshoring also presents unique risks:
Infrastructure Limitations
Companies must diligently vet vendors' properties and prepare for potential issues, such as water scarcity affecting building safety features or sprinkler systems.
Weather Trends and Natural Catastrophes
North American partners may experience severe weather events or natural disasters, requiring careful analysis of historical data and plan making.
Economic and Business Interdependencies
Nearshoring creates interdependencies, making disruptions in Mexico or Canada negatively impact U.S. operations due to the reliance on goods from nearshore operations.
Regulatory and Compliance Challenges
Each country has specific regulatory requirements, such as Mexico City's recent requirement for automatic sprinklers or Canada's strict driver background checks.
Transportation Security Issues
Cargo theft can be a challenge in Mexico and Canada, partly due to motorcycle gangs and drug cartels involved in the theft process.
Remaining Supply Chain Complexities
Regardless of nearshoring or offshoring, international supply chains involve logistical and legal complexities.
To address these risks, manufacturers can:
- Monitor political climates, assess risks, and adjust strategies accordingly.
- Identify alternative suppliers and create business continuity plans.
- Ensure compliance with local safety and environmental regulations.
- Conduct regular quality control checks.
- Address location-specific risks with equipment and personnel.
- Understand and adhere to regulatory and compliance conditions.
- Obtain comprehensive global insurance coverage.
Experienced global insurance professionals can guide manufacturers on the best risk management strategies. Contact us to learn more about our global coverage solutions designed to protect your business operations from nearshoring risks.
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- As manufacturers shift towards nearshoring in North America, they also face unique risks such as infrastructure limitations and weather-related disasters.
- To mitigate these risks, it's crucial for manufacturers to conduct regular quality control checks and ensure compliance with local safety and environmental regulations.
- Understanding and adhering to regulatory and compliance conditions in each country is essential, as each nation has specific requirements, like Mexico City's automatic sprinkler system law or Canada's strict driver background checks.
- To address location-specific risks, manufacturers can invest in equipment and personnel to enhance safety measures and minimize potential issues.
- Experienced brokers can provide global insurance coverage solutions to protect manufacturers from nearshoring risks, guiding them on the best risk management strategies.
- By obtaining comprehensive insurance coverage, manufacturers can safeguard their business operations from potential liabilities arising from nearshoring partnerships, including natural catastrophes, infrastructure issues, or transportation security concerns.
