Imagine a U.S. automaker that previously relied on low-cost Asian components now facing rising shipping costs, geopolitical risks, and growing consumer demand for "Made in America" products. How should such companies respond? For many, the answer lies in nearshoring - relocating production closer to home markets.
A new report from AlixPartners reveals how labor costs, trade policies, and macroeconomic pressures are driving profound changes in global supply chains, with manufacturing at the epicenter of this transformation. The study, titled "The Shifting Global Supply Chain and Its Impact on Nearshoring," suggests that while automation is altering cost structures, nearshoring decisions remain complex.
Key Drivers of Nearshoring
AlixPartners identifies several factors accelerating the nearshoring trend:
- Labor Costs: While some Asian regions maintain lower wages, the combined costs of transportation, tariffs, and supply chain risks are making nearshoring increasingly attractive.
- Trade Regulations: New tariffs and trade policies, particularly those targeting Chinese imports, are forcing companies to reevaluate supply chain configurations.
- Economic Pressures: Global economic uncertainty and growing consumer preference for locally manufactured goods are pushing companies toward nearshoring.
- Automation: Technological advancements are reducing labor dependence, making nearshoring more economically viable.
America at the Forefront
The report highlights the United States as a leader in the nearshoring movement, particularly in strategic sectors like energy, infrastructure, technology, and security. Domestic policies and incentives are encouraging companies to establish facilities in the U.S. and neighboring regions rather than overseas.
Key legislative measures supporting this shift include:
- The CHIPS Act to boost domestic semiconductor production
- The Infrastructure Investment and Jobs Act for infrastructure improvements
- The Inflation Reduction Act addressing healthcare and energy security
- Made in America provisions in federal procurement
Total Cost of Ownership: The Deciding Factor
AlixPartners' analysis shows that while China may still appear cheaper based on landed costs, total cost of ownership (TCO) ultimately drives decisions. Automation reduces labor dependence, while local sourcing of materials provides additional justification for nearshoring.
TCO considerations include:
- Manufacturing expenses
- Transportation costs
- Tariff impacts
- Inventory management
- Supply chain risks
Automation as a Catalyst
The report notes significant growth in automation investments, with U.S. companies purchasing nearly 40,000 robots in 2021 alone. Such investments are creating a domestic manufacturing ecosystem where scale improves nearshoring economics.
Automation benefits include:
- Lower labor costs
- Increased productivity
- Improved quality control
- Greater supply chain flexibility
Policy Impacts
Recent U.S. legislation, combined with tariffs on Chinese imports, is accelerating nearshoring trends. While some policies like Made in America provisions have existed for decades, new measures with stricter local content requirements are forcing companies to reconsider their strategies.
These policies, when combined with automation, can reduce procurement costs while minimizing tariff and shipping expenses.
Strategic Considerations
AlixPartners concludes that technological advances and policy changes are rewriting the total cost and risk ownership equation. The U.S. may be at the beginning of a nearshoring revolution that could permanently alter global supply chains across multiple industries.
For companies considering nearshoring, strategic priorities should include:
- Developing clear nearshoring strategies
- Selecting optimal locations
- Investing in automation
- Building resilient supply chains
- Establishing local partnerships
As these trends continue, businesses that effectively navigate the nearshoring transition stand to gain significant competitive advantages in the evolving global marketplace.