What’s the Difference Between Nearshore (Nearshoring) vs. Offshore (Offshoring) vs. Reshore (Reshoring) Operations?
Offshoring means to move your business’ operations to another country. This term became popular in the 1970s and 1980s as more and more companies moved their operations overseas to improve efficiencies and reduce their labor costs. For example, moving a manufacturing operation from the United States to China.
Nearshoring is a subset of offshoring, but instead of moving operations to another country, businesses are moving their operations to a country nearby their home country. An example of this is moving the manufacturing operation from China to Mexico, a nearby country of the United States.
Offshoring
Offshoring is when a company moves part of its work to another country, usually far away, to save money or use special skills. This term became popular in the 1970s and 1980s, as more and more companies moved their operations overseas to improve efficiencies and reduce their labor costs. For example, moving a manufacturing operation from the United States to China.
Nearshoring
Nearshoring is a subset of offshoring, but instead of moving operations to another country, businesses are moving their operations to a country near their home country. An example of this is moving the manufacturing operation from China to Mexico, a nearby country to the United States.
Reshoring
Reshoring, also known as onshoring, is when a company moves work or production back to its home country after having it done in another country. Reasons for reshoring can include rising transportation costs, geopolitical challenges, supply chain constraints or instability and increased labor costs.
Why is Nearshoring Trending?
The US has seen shifts in its foreign trade policies and tariffs in recent years, especially related to China, and there is potential for this to grow in the future. The US incoming administration has indicated plans to focus on reducing reliance on China and other international manufacturing centers as part of its supply chain strategy. This may include implementing higher tariffs on imported goods, with particular emphasis on imports from China1. In response, businesses are likely to explore strategies such as nearshoring to diversify supply chains and minimize potential trade disruptions.
Nearshoring in Mexico
In 2023, Mexico became the United States' top trading partner2, and it’s likely to stay that way. For many US companies, Mexico is now a popular choice for nearshoring, thanks to a few key reasons:
- Proximity Saves Time and Money: Compared to Asia or Europe Mexico’s neighboring location to the U.S. cuts transportation costs and reduces delivery times.
- Faster Shipping: Fast shipping times are essential for an eCommerce business to meet customer expectations. Nearshoring to Mexico enables faster shipping compared to sourcing products from Asia or other distant regions.
- Tax Incentives: Since the Section 301 tariffs went into effect in 2018, there has been a big reconsideration for companies shipping from Asia to the United States. By setting up a nearshore solution in Mexico or a close neighboring country, companies can alleviate the impact of Section 301 tariffs and take advantage of the USMCA free trade agreement between Mexico and the United States.
- Environmental and Sustainability Goals: Shipping from Mexico uses less fuel than from overseas, contributing to a reduced carbon footprint.
Nearshoring in Asia-Pacific: China Plus One
Another trend in global trade lane shifts is the "China Plus One" strategy. This approach involves companies expanding their operations to an additional country, such as Mexico, while maintaining their existing presence in China. This strategy aims to diversify supply chains, reduce tariffs, and minimize risk.