2014 Reshoring/Nearshoring Executive Survey and Outlook
US Surpasses Mexico as Most Attractive Location, but Several Concerns Remain

The United States has surpassed Mexico as the preferred location for nearshoring of previously offshored manufacturing slated for US consumption, according to AlixPartners’ 2014 Reshoring/Nearshoring Executive Survey and Outlook.(After Mexico, respondents ranked Canada, South America, Central America, and the Caribbean—in that order.) This year, 42% of respondents said they would choose the United States as their preferred location. That is up from 37% in last year’s survey.

The percentage who said they would choose Mexico (among various countries and regions in the Americas) dropped to 28% this year, down from 37% last year and from 49% the previous year. That decrease in Mexico’s attractiveness may stem in part from perceived security and safety issues in that country, though more than half of our respondents said they expect such issues to improve in the next five years. At the same time, the United States has grown more competitive as a location of choice for near- shoring, fueled in part by recent shale-gas breakthroughs. Nevertheless, some of the advantages offered by nearshoring in the United States may be short-lived. Companies serving the US market still face complex challenges in making manufacturing-sourcing decisions. To get the most from nearshoring, manufacturers should closely examine their own unique circumstances and adapt their sourcing strategies to those circumstances.

Nearshoring’s Challenges and Advantages

Although the comparative attractiveness of the United States has intensified, the study also points to several challenges that can make nearshoring—to anywhere difficult. For instance, when executives in our survey were asked about the biggest challenges they have faced or expect to face with the nearshoring of their manufacturing operations, they said the leading challenges centered on availability of skilled labor, quality of work, local government regulations, and labor-law issues (figure 1).

For companies in our study that are considering the United States as a nearshoring location, executives said the federal government can take specific actions to tilt its decision in the direction of yes. These include reforming tax rates, reducing the regulatory burden of nearshoring in the United States, and reforming tariffs and duties.

The complexities inherent in manufacturing-sourcing decisions seem to have put a small dent in companies’ confidence in nearshoring’s advantages, especially companies’ expectations regarding nearshoring’s ability to reduce total landed costs. To illustrate, only 50% of the enterprises represented in this year’s survey have reduced or expect to reduce such costs by more than 6% as a result of nearshoring—down from 58% in 2013 (figure 2).

Despite the complexities, nearshoring remains important to companies selling into the United States. Indeed, 81% of this year’s survey participants described nearshoring as “somewhat important” or “very important”—about even with last year’s 84%. Meanwhile, as much as 99% said nearshoring was “as important as” or “more important than” it was a year ago; 100% made that claim in last year’s study. Moreover, 41% of those surveyed said they see nearshoring as an opportunity, with 86% of that number reporting that they have nearshored or expect to nearshore in two or three years. The three most attractive advantages that respondents expected to gain from nearshoring were improved speed to market, lower freight costs, and improved customer service because of closer proximity to customers (figure 3). For the 40% of respondents who expect foreign market demand for their products to intensify in the near future and therefore reduce the capacity available for serving US market demand, just over 33% of them said they plan to continue meeting US demand by boosting capacity in the United States.

Crucial Considerations

Clearly, nearshoring continues to be a draw for companies selling into the United States. But to extract maximum value from nearshoring, executives need to be discerning when making decisions about where to source manufacturing operations. We suggest they look before they leap by weighing numerous considerations, such as product type, local workforce capabilities, supplier flexibility and capability, availability of open capacities, and potential shifts in government subsidies—to name just a few.

Failure to take those considerations into account may contribute to a nearshoring-strategy backfire. For example, if a local workforce lacks the skills needed to carry out the manufacturing task, product defects or shipping delays could erode customer satisfaction and loyalty, canceling out expected improvements in speed to market or customer service. Likewise, if the base of local supply proves insufficient, the supposed advantages of the nearshoring decision may not materialize. Businesses should factor a full range of costs into their nearshoring decisions. If such costs prove higher than a company expected, they can wipe out any savings and other gains achieved by nearshoring.

 1 In March 2014, AlixPartners conducted a Web-based survey of 143 senior executives from manufacturing and distribution businesses—representing 13 different industries— that sell into the US market. All respondent data cited in this article derives from that survey.

The information contained in this article is also subject to the terms, limitations and assumptions contained in the 2014 Reshoring/Nearshoring Executive Survey, a copy of which can be provided upon request, including those assumptions, disclaimers, and other limitations contained in that survey.

This article regarding 2014 Reshoring/Nearshoring Executive Survey and Outlook: US Surpasses Mexico as Most Attractive Location, but Several Concerns Remain (“Article”) was prepared by AlixPartners, LLP (“AlixPartners”) for general information and distribution on a strictly confidential and non-reliance basis. No one in possession of this Article may rely on any portion of this Article. This Article may be based, in whole or in part, on projections or forecasts of future events. A forecast, by its nature, is speculative and includes estimates and assumptions which may prove to be wrong. Actual results may, and frequently do, differ from those projected or forecast. The information in this Article reflects conditions and our views as of this date, all of which are subject to change. We undertake no obligation to update or provide any revisions to the Article.