Nearshoring: A solution closer than you think
Nearshoring is emerging as a resilient, cost-effective strategy for companies facing global volatility. By relocating operations closer to key markets, firms boost agility, cut costs, and tap into Latin America’s skilled workforce
The dice are still rolling and there is a chance that new agreements will avoid the tariff increases that the United States threatens to impose on its trading partners. Regardless, it's become clear to companies that it's imperative to think of more enduring and resilient solutions, ones that can be adapted to the political and economic volatilities of our time. I believe that nearshoring is one of these solutions.
At the end of February, with the self-explanatory title "A guide to dodging Trump's tariffs", The Economist magazine summarized in an article a form of nearshoring, albeit without naming it:
"American customs officials have deemed [the cable harnesses in Hyundai's cars] to be made in South Korea. Yet although the raw material is manufactured there, most of the production process happens in China, with the finished harness then sent back to South Korea. Designing supply chains so that just enough production happens in a location that benefits from lower tariffs is cheaper than relocating manufacturing in its entirety, and allows firms to be nimbler when new levies come in."
It’s clear as day. And, obviously, it's not just Asia that's benefiting from this practice. For years, nearshoring has been gaining traction in Latin America. So, it's no surprise that the World Economic Forum (WEF), in an article published this year about the region's good economic winds, pointed out this strategy as a trend for 2025. That's why I want to delve into this practice in greater detail, presenting some recent and illustrative data.
Nearshoring, a solution for each demand
I don't want to be too didactic for colleagues already experienced in the topic, but I think it's important to define the term. In contrast to offshoring, nearshoring is the installation of production plants or production stages (as in the case explained by The Economist) in nearby countries. Generally, these countries are contiguous to larger markets, sharing borders, although not necessarily. There are immediate advantages in this strategy, such as:
Tax incentives;
Cheaper currencies and lower costs;
Same time zone or minimal difference;
Availability of raw materials;
Shared values, similar cultures (the WEF calls this 'friendshoring').
All these points bring a series of other benefits to companies. In a world subject to disruptions from various causes (pandemics, wars, etc.), shorter supply chains are a logistical asset. They represent not only transportation savings but also the difference between days or weeks in supplying markets, whether in replenishment or launching new products, as well as more security (remember the incident in the Suez Canal?).
Underestimated opportunities in LATAM
A recent article by Americas Quarterly on nearshoring in Latin America and the Caribbean set up a ranking based on different indexes, such as Financial Development, International Property Rights, Logistics Performance, etc. Uruguay, Chile, Costa Rica, Brazil and Panama appear in the top five positions as underestimated investment opportunities. The list also includes Argentina and Colombia, in South America; and Jamaica and Trinidad and Tobago, in the Caribbean.
Obviously, Latin America is not just a neighbor of the world's largest consumer center but also has enormous consumer markets of its own. The main point for companies interested in nearshoring is to understand which characteristics of an operating location can best adapt to their production, service, logistics strategies, etc.
Mexico is closer to the United States but also has a large consumer market. The same can be said of Brazil, which still has excellent logistical infrastructure; Colombia has ports on both the Pacific and the Atlantic and also has a free trade agreement with the United States – as do countries as Chile, Peru, the Dominican Republic, Panama, and others.
Streamlining logistics chains
A new study by KPMG, The Proximity Premium - Strategically Reshaping Supply Chains in the Americas, interviewed 250 North American executives and indicated that many have already moved or plan to move part of their operations to the Americas (including Canada and the United States itself) in the near future, in order to enhance their supply chains resilience.
According to KPMG, this reflects the geographical streamlining of supply chain routes, with the average number of locations involved in a single supply chain set to fall from 2.7 to 2.4 in the next three years. The study indicates that 69% of the supply chains serving the North American market will be based in the Americas. Talking specifically about Latin America, Mexico, Brazil, and Chile are highlighted.
A gigantic market of talents
It is worth addressing another factor: even though some companies opt for reshoring, that is, reactivating plants within the United States, it is very likely that part of these operations or its entire teams will still be allocated beyond borders. Whether for whole sectors or seasonal contracts, outsourcing or staff augmentation are tactics that can take advantage of the talent market in Latin America – and at much lower costs.
The Nearshoring - Unveiling Latin America’s Potential, a report by JLL, presents interesting ‘Top 5 Main Destinations According to Nearshoring Criteria’. One of these criteria is precisely ‘Workforce’, with Buenos Aires (ARG), Lima (PER), Sao Paulo (BRA), Bogota (COL), and Santiago (CHI) in the top positions, all offering competent professionals in their areas that are also fluent in English.
The truth is we still don't know how the tariff issue will end, but one thing is certain: the rain falls on the just and the unjust. Companies that have reduced costs and own more agile operations will absorb any impact better and secure their market share against competition. A well-designed nearshoring strategy, customized for logistics and demands for human capital and raw materials, could be the nearest solution for your company.
Leading Questions About Nearshoring
What is nearshoring and how does it differ from offshoring?
Nearshoring involves moving production or services to nearby countries, often sharing borders with major markets, unlike offshoring, which relocates operations to distant regions.
Why is nearshoring gaining traction in Latin America?
Latin America offers proximity to the U.S., large consumer markets, skilled talent, and improved logistics, making it an attractive alternative for companies seeking resilience and efficiency.
What are the immediate advantages of nearshoring for companies?
Nearshoring shortens supply chains, reduces transportation costs and risks, accelerates market response, and enhances operational security amid global disruptions.
Which Latin American countries are top nearshoring destinations?
Uruguay, Chile, Costa Rica, Brazil, and Panama are highlighted as top opportunities, with Mexico, Colombia, and others also standing out for logistics and workforce quality.
How does nearshoring impact workforce and talent strategies?
Nearshoring enables companies to access a vast pool of skilled, English-speaking professionals in Latin America, supporting both permanent and flexible staffing needs at lower costs
