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Onshoring or Nearshoring?

Posted 3:12 PM by

Over the past few years, bringing manufacturing back to the United States - or onshoring - has been a hot topic in the manufacturing industry. With increasing wages, currency costs and transportation costs, many companies that previously offshored their manufacturing processes to China (and other low-cost countries) have had to reevaluate that decision. Some estimates suggest that the cost of manufacturing in China will be as high as the cost of manufacturing in the U.S. by as early as 2015. 

Although onshoring has been discussed for quite some time, and many speculated that it would happen, manufacturers are also beginning to "nearshore.” Nearshoring moves the manufacturing process out of low-cost countries and into lower-cost options close to the U.S., namely Mexico.

Mexico continues to have a low-cost labor market. Additionally, the transportation costs involved in getting products back to the United States are much lower. In an interview with Entrada Group, Jason King, vice president of AlixPartners, points to several key benefits of producing in Mexico compared to China. These benefits include:

  • Lower transportation and warehousing costs
  • Improved ability to respond to customer demands
  • Better control of intellectual property
  • Ease of proximate time zones between management and production
  • Cultural similarities between the U.S. and Mexican markets

What does this mean for manufacturing in the United States? Paula Romas, marketing director at MFI International, says, “I strongly believe North American companies should take advantage of nearshoring labor-intensive operations by establishing production sharing between the U.S., Canada and Mexico, and boosting economic activity within the region.” 

She continues, “Forty percent of Mexico’s exports to the United States consist of components made in the United States, primarily for the automotive industry. In China, that number drops to less than eight percent. By that logic, increasing Mexico’s manufacturing industry directly stimulates manufacturing jobs in the U.S. In turn, creating jobs in Mexico stimulates the Mexican economy, which increases Mexican imports from the United States.”

About the Author

Justin Hayes is a director in Katz, Sapper & Miller’s Audit and Assurance Services Group as well as being a member of the Not-for-Profit and Governmental Services Groups. Justin works with clients to help them avoid risk and maximize efficiencies by keeping an eye on their bottom line and helping ensure accurate financial reporting. Connect with him on LinkedIn.

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