It’s official: Nearshoring is hot. For U.S. companies that means moving production or sourcing activities from far-away East Asia to partners located closer, especially Mexico. For European companies, it means turning to neighbors such as Hungary or Romania. Organizations in a wide variety of industries, from aerospace, automotive, and apparel to software development are using nearshoring—sometimes called regionalization or proximate sourcing—as a means of reducing supply chain risk and increasing resilience in the wake of recent global disruptions. Onshoring is also a popular move, although one that typically carries higher labor costs (see sidebar, “Shoring, defined”)—after all, costs are the whole reason offshoring became a thing.

Particularly for organizations that had been heavy users of offshore outsourcing, rising labor costs in centers such as India and heightened global uncertainty are leading the move to bring operations closer to home. The Baker Institute for Public Policy deconstructed the factors involved in current nearshoring movement, including lower manufacturing costs and environmental impacts due to the avoidance of long-distance supply lines. Many global enterprises are withdrawing from China, which is seen as an increasingly hostile business environment for many U.S. companies.

Shoring, defined: on, off, near, and more variations

• Onshoring
  Refers to companies sourcing goods or processing workloads in their home country. Onshoring can carry the cachet of patriotism and sustainability but comes with higher labor costs for companies based in more developed economies.
• Offshoring
  Refers to sending work overseas to locations where labor is less expensive and in which providers have honed their efficiency. Along with lower costs, though, widely dispersed production can lead to reduced flexibility and exposure to new risks.
• Nearshoring
  Known in some cases as regionalization or proximate sourcing. Refers to companies that are transferring part of their production or sourcing to countries close to their markets and in similar time zones. Common motivations include reducing lead times, asserting more quality control, and minimizing the effects of supply chain disruptions.
• Reshoring
  Refers to bringing offshore production of goods back to the home country. Opening manufacturing facilities in locations closer to consumers can increase flexibility and responsiveness and reduce supply chain risk.

Shoring, defined: on, off, near, and more variations

Few supply chains emerged unscathed following a series of disruptions in recent years. The COVID-19 pandemic revealed that supply chains for manufacturers and retailers had been stretched thin from decades of cost cutting through long, lean, and largely offshore supply chains. For business leaders who anticipate the effects of tariffs and trade wars, conflicts in eastern Europe and the Middle East, factory shutdowns, logjammed ports, and demand volatility, the appeal of nearshoring and onshoring has crystalized.

Giant conglomerates are by no means the only organizations with these concerns. In a 2024 global SAP Insights study, supply chain disruptions and weaknesses ranked as the top internal challenge to business growth among 860 midmarket wholesalers and distributors.

Nearshoring is one of the most common attempts to minimize these problems. According to the Fictiv State of Manufacturing 2024 survey, improving manufacturing and supply chain visibility is the top business priority for the third year running, cited by 54%, closely followed by the need to improve supply chain strength and flexibility, mentioned by 48%. Nearshoring within North America is a popular supply chain strategy according to the survey, practiced by 54% of respondents, while increasing U.S.-based manufacturing (onshoring) remains the top supply chain strategy for a third year (66%)—although it fell substantially from the preceding year. In Europe, a 2023 study by Quima found similar results, with 55% of respondents saying they had increased nearshoring in a 12-month period.

Whereas reducing labor costs to their lowest levels to increase output efficiency was once the top supply chain priority, building durability is now crucial according to analysis by Citi on supply chain financing, per the Wall Street Journal. Reshoring and nearshoring are happening on a large scale, according to the report, and Mexico, Vietnam, and India are benefiting. In Mexico, U.S. automakers, including Ford and General Motors, are nearshoring manufacturing, while European and Asian companies are moving production closer to North American consumers. Factory building in the United States has also picked up over the past year, as reported by operations consulting company Trigo.

In many ways, the case is clear. Nearshoring or onshoring can contribute to more risk-resistant supply chains—leading to faster time-to-market, more effective planning cycles, and greater flexibility in response to disruption. Proximate sourcing can allow greater control and more frequent site visits, reduce cultural barriers, and boost communication and collaboration. Reductions in logistics costs and lead times can also bolster the balance sheet by freeing up working capital that is tied up in cash outlays to suppliers and to inventory in transit.

That’s why nearshoring is worth evaluating. But it’s a more complex opportunity than initial knee-jerk reactions may have indicated. Companies that move more activity closer to home can benefit if they proceed thoughtfully, factoring in the full range of costs as well as the availability of supply in conjunction with efforts to improve communication, visibility, and data-sharing across their supply chain.

It’s also important for decision-makers to remain realistic. Nearshoring is not as simple as just yanking everything back to a nearby location. In many sectors, there may be no widespread sources of supply. In others, deciding when, where, and how to take advantage of geographically closer sourcing options will take work, significant time, and increased up-front costs.

The following are five realities that business leaders should understand about nearshoring and onshoring as they consider their next steps.

1. Expanding options is the point

Almost no one is bringing everything home. For example, don’t expect to see a retailer or hardware manufacturer move all their sourcing from Asia to, say, Mexico.

Instead, companies are focused on diversifying their supply chains, says Michel Roger, managing director in Accenture’s supply chain and operations practice. The degree to which they are pursuing diversification depends on their circumstances. “Sectors with added need for resilience and national security interests, like semiconductors and pharma, are diversifying even more,” Roger says.

For many companies, the near-term focus has been on finding suppliers in nearby regions that can step in when their primary partner is facing a challenge, rather than a comprehensive reversal of sourcing strategy. They may start by onboarding secondary suppliers in the United States or using a contract manufacturer in a nearby country or region while retaining their established partners overseas.

U.S.-based manufacturers that for many years have capitalized on the lower costs and “knowledge prowess” of specific countries, particularly China, are now reevaluating their options, says Elysse Blank, a manager specializing in supply chains in West Monroe’s Operations Excellence practice.

Boeing is a notable example. Quality and safety issues recently plaguing the once-leading brand were partly attributed to the legacy of two decades of outsourcing R&D. According to the report in Forbes, Boeing failed to consider the need to develop real cross-culture trust and to cultivate partnerships. Boeing is reportedly nearshoring elements of its operations to Mexico in a bid to reduce the cultural issues and disconnect that had grown over long-distance offshore outsourcing.

Mexico is often cited as a top nearshoring location for the United States. Obviously, regionalization means different things to companies situated elsewhere around the world. For example, Inditex, a huge multinational based in Spain that owns household brands such as Zara, nearshores 10% of its production in nearby Morocco and Turkey. Ten percent may not seem significant, but for an industry that virtually invented offshore outsourcing, it is noteworthy.

2. Don’t forget switching costs, which can add up fast

There is a complex calculus to evaluating the business case for nearshoring. Consider, for example, that ocean-freight transit times and costs are beginning to drop following their pandemic highs. Companies that once considered moving their supply bases to North America to address those issues may find that the costs outweigh the benefits. “Amid today’s logistical chaos, costs are also often miscalculated,” says Blank.

When considering switching suppliers or locations, calculating total landed costs—the sum of all expenses related to the manufacturing and delivery of a product to the customer—is often the first step. For instance, companies must consider the costs of production, transportation, customs duties, crating, handling, currency conversion, and insurance.

Landed costs, however, only tell part of the story; the calculation historically stops when a product reaches the warehouse or distribution center. Some companies are adopting the cost-to-serve metric, which factors in the expense of sales, service, and last-mile logistics. The decision to nearshore or reshore can bring that number down, especially in the face of rising labor costs in locations like India, which is the site of much offshore outsourcing.

But that’s just the start. Business leaders must also factor in the expense of introducing a new supplier into the network. This includes building enough stock to maintain production during the transition, redesigning supply chains and associated capital expenditures, the ramp-up period required to bring new facilities or suppliers online, onboarding and offboarding suppliers, and the time and money required to validate that the new locally made product or supplier can provide what’s needed.

3. It can make sense to nearshore some things, but not everything

Nearshoring or onshoring may only make sense for a certain subset of products, a practice known as supply chain segmentation, in which a company pursues different strategies based on the needs of different customers, products, and distribution channels. (“Rightshoring” is a perhaps needless buzzword for optimizing a mixed production model.) Supply chain segmentation requires determining the business value of various activities at a granular level—whether defined by product volumes, revenue, profit margin, strategic importance, or some combination thereof.

“Segmentation is a key driver shaping nearshoring decisions,” says Roger. “Leading companies use data-driven segmentation to identify products or customers where responsiveness is more critical.”

Nearshoring may make more sense for high-value, high-margin products where the cost of transporting them to the customer is also high, or in innovation-driven segments with frequent product changes. One of the biggest mistakes a company can make when considering nearshoring or reshoring, according to Roger, is to make sweeping decisions without this kind of analysis and segmentation.

Supply chain segmentation may reveal the upside to moving some materials and components to locations closer to where final manufacturing or sales happen. And such analysis and evaluation of nearshoring and reshoring options should be ongoing. Customer demand, for example, can change on a dime, recasting the role of certain products, so it is important for companies to be ready to adapt.

4. Nearshoring or reshoring at scale will take years

The past few years have seen an undeniable uptick in nearshoring and reshoring. But some companies and sectors may not have the necessary infrastructure to support immediate nearshoring or reshoring. Industry consolidation in some sectors, such as semiconductors, means that sourcing is limited to a handful of suppliers and to even fewer geographic areas.

Trained labor is another concern. Companies have spent decades moving capabilities and knowledge offshore, and they can’t bring that back overnight. “The number one issue is availability of talent,” says Roger. “Operations are increasingly more automated and leverage new technologies, which requires less people but with higher specialization in areas like AI, Internet of Things (IoT), 5G, blockchain. And there’s a talent gap across the globe that can limit organizations on their ability to pivot at scale.”

Some relatively new government regulations, such as the U.S. CHIPS and Science Act 2022 for semiconductors, require companies operating in certain sectors to rein in their dispersed supply chains. But these changes take time.

Intel, for example, announced details in early 2022 of the construction of two new chip factories in Ohio. The company has the benefit of being one of a few in the world that can perform both design and manufacturing in-house. CEO Pat Gelsinger says it will help the company build a stronger supply chain and ensure reliable access to advanced semiconductors. As such, Intel is well-positioned to bring manufacturing back to U.S. shores, which many companies cannot do, at least not at scale, due to higher labor costs.

For many organizations, nearshoring splits the difference between offshoring (now seen as riskier) and onshoring (with more expensive labor). With nearshoring, cultural differences are fewer, time zones and travel are easier to manage, and labor costs are affordable in regions such as Mexico and eastern Europe.

5. Digital integration that enables real-time tracking and communications is paramount

In terms of the overall complexity (or simplicity) of managing a supply chain, the level of digital integration that companies have built across supply chain nodes matters more than how geographically dispersed they are.

The key is to allow collaborative inventory planning at the network level, real-time tracking of goods, predictable and accurate lead times, and visibility into their suppliers’ suppliers—the tier-two and tier-three companies that are part of a modern supply chain. “These capabilities are not constrained by borders but by operating model, process, people, and technology,” says Roger. “Trade restrictions may come and go, but a flexible supply chain should be able to react to those.”

Many supply chain challenges from recent years could have been mitigated with better communication, greater visibility into operational details and statuses, and the right tools. In response to a drop-off in demand for new vehicles, for example, many automakers scrapped their semiconductor orders. Semiconductor manufacturers naturally shifted their production to meet soaring demand for products such as laptops, TVs, and gaming consoles. When consumers started shopping for new cars again, the automakers were out of luck. Greater communication and collaboration among automakers and their supply networks, as well as those of their suppliers, would have been beneficial.

Companies need to help their suppliers help them—whether they’re located in the same time zone or halfway around the world. A crucial element of the solution is sharing data related to demand trends and supply constraints and building closer relationships within the entire business network—not just the big tier-one suppliers (partners that a company directly conducts business with, including contracted manufacturing facilities or production partners).

Companies that implement technologies and digital processes that can boost responsiveness and flexibility at even lower costs can increase visibility across their entire supplier network to sense, anticipate, and respond to real and potential risks, according to Jim Kilpatrick, global supply chain network operations leader for Deloitte Consulting.

“Organizations in which supply chain planning decisions are made offshore with little visibility into them suffered more from lack of transparency, slower decision-making, and poor visibility into shipment in recent years, says Roger. “It is, to a large extent, a gap in the operating model and digital integration,” Roger explains. Using technology to ensure timely, transparent decision-making is important.

Building risk-resistant supply chains that anticipate uncertainty

In a volatile business environment, reevaluating sourcing locations is important. But nearshoring or reshoring is not a panacea. Business leaders should review their near- and long-term options with an understanding of the big picture.

Start with the business problem

Before considering any shift in sourcing locations, business leaders need a firm understanding of their existing supply chain design and its associated risks. “Leaders should ensure that there is a true long-term advantage or gain to reshoring activities,” Roger says.

Consider the spectrum of options

Nearshoring or onshoring is a long-term move. Some companies are evaluating other options to increase the strength of their supply chain, such as upgrading materials, planning better, and improving process quality. There has also been a surge in new technologies that help inform decisions by modeling the impact of proposed changes. And even if a company decides to maintain a far-flung supplier network, pursuing increased digital integration of supply chain systems remains an important move.

Build for uncertainty

Making a nearshoring decision based solely on the most recent supply or demand shock or current geopolitical turmoil is a bad idea. “Those will keep changing over time,” says Roger. The decision “should be focused on creating resilience to better serve customers while doing good for the planet. Companies need to refresh their supply chain mindset and talent to be aligned to this new reality.”