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Published August 2024

Nearshoring: The Advantages of Sourcing Close to Home

 

For U.S.-based companies, manufacturing in the Western Hemisphere should be part of a well-thought-out, diversified sourcing strategy.

 

 

Maintaining a diverse sourcing strategy is vital to the health of any brand. It provides opportunities to utilize the skills and strengths of various manufacturer’s specialties, insulates from delays or problems from any single source, and can help reach a brand’s goal of producing and delivering on-trend fashion while maintaining a healthy cost/margin ratio. 

Nearshoring—the practice of manufacturing in geographically close countries—can help maintain that diverse sourcing plan. For companies based in the United States, nearshoring means sourcing from Canada or Mexico, as well as the nations of Central and South America. (Check out our Country and Regional Guides here to learn more about the benefits, advantages, and areas of expertise of regions around the world.)

SOURCING at MAGIC Vice President Andreu David says, “We should all be focused on getting to know the expertise and benefits that each country offers so that we can produce the best product possible at the planned price point. It's about gathering the specifics about each country’s strengths and benefits.”  

SIMPLE LOGISTICS

The most obvious advantages in nearshoring lie in logistics. Shipping from a country within the same continent or hemisphere is cheaper and faster than shipping from one that’s far away. Communication can be much easier when partners are in similar time zones. Visiting production facilities is much less stressful when they are only a short plane ride away. 

Communicating with nearshore manufacturers can be much more manageable and effective. Emails can be answered on a timelier basis, and phone or teleconferencing calls can be scheduled during traditional work hours. As a point of reference, 9:00 am in Sao Paolo is 8:00 am in New York and 5:00 am in Los Angeles whereas a 12-to-13 hour time difference with countries in Asia.  

As Ashley McPherson, Buyer Relations Specialist at SOURCING at MAGIC puts it, "In global sourcing, time zone disparities can significantly impact production timelines. A single missed communication due to asynchronous workdays can cascade into substantial delays, affecting the entire supply chain and potentially compromising market responsiveness."

Similarly, because traveling to nations that are closer is usually easier, factories or corporate headquarters become much more accessible. As an example, a flight from New York to Bogota, Colombia, takes just over five hours, and one from LAX to Lima, Peru is 8 and 1/2 hours. Travel to the far east can range from 12 hours up to 22 hours depending on where you are headquartered in the US. 

"The value of on-site presence in manufacturing relationships cannot be overstated. While digital communication is efficient, face-to-face interactions build trust and enable rapid decision-making. In critical situations, the ability to be physically present can be the difference between a minor setback and a major disruption in production, ” says McPherson. 

As Jessica Kelly of Nest (a company that connects corporations and retailers with handicraft artisans) puts it, “Zoom calls can be very transactional. Going to visit a source is key to building trust.” 

 

 

“We should all be focused on getting to know the expertise and benefits that each country offers so that we can produce the best product possible at the planned price point. It's about gathering the specifics about each country’s strengths and benefits.” 

- Andreu David, Vice President, SOURCING at MAGIC

 

MAKING THE MINIMUM

Related to those aforementioned reduced inventories, many U.S. companies have looked to produce in the Americas not only because of proximity but also to meet minimum order quantities (MOQs). ProColombia—which promotes exports, tourism, and foreign investment in Colombia—points out that suppliers or countries offering faster replenishments allow companies to keep lower inventories and a better cash flow, which results in savings. Nearshoring becomes relevant for logistics, for flexibility, and is important for regions that specialize in added value products. 

"Nearshoring presents a compelling value proposition beyond proximity. While labor costs may be higher, the cumulative benefits of reduced lead times and lower transportation expenses can yield a more favorable total cost of ownership. This holistic approach to sourcing can significantly enhance operational agility and financial performance,” says Ashley McPherson, Buyer Relations Specialist at SOURCING at MAGIC.

In an industry obsessed with speed to market, it’s essential to remember that rapid manufacturing may not be suitable for every product in the assortment. 

“You don't need speed for everything you make,” says Linsey Jones, Executive Director of the Americas Apparel Producers Network. “I try to impress that upon anyone who is new to sourcing or looking to dabble in the Western Hemisphere. The Western Hemisphere is not Asia, and it cannot be all things to all people. You have to be pretty specific about the product you want to make there. Doing business in the Western Hemisphere allows you to make late decisions. You get to follow a much shorter product development calendar because of the logistics and development times.” 

Jones explains further, “No one does anything faster than anyone else. [All things being equal with technology] it takes the same time to make so many units. But the development cycle is where you get the bang for the buck. You can delay decision-making, which means you can delay money changing hands, which means more cash on hand and less inventory (particularly important to publicly traded companies). It also means less investment in maintaining players in the country: a U.S.-based team can easily get on a plane, go to Latin America and talk with suppliers. From a logistics perspective, things that would take four to six weeks on the water can take as little as one to two weeks out of the Western Hemisphere.”

 

RISK AVERSION 

"Diversification in sourcing is not just risk mitigation; it's strategic resilience. By cultivating relationships with multiple suppliers across different regions, brands can adapt swiftly to global disruptions, whether they're geopolitical tensions, natural disasters, or unforeseen global health crises,” says McPherson. "This approach ensures business continuity and maintains competitive edge in volatile markets."

 

 

“Nearshoring can significantly reduce lead times and transportation costs through geographical advantages.”

- Ashley McPherson, Buyer Relations Specialist, SOURCING at MAGIC

 

 

 

EXPERTISE AND VERTICAL INTEGRATION 

Many Central and South American countries have the land and raw materials necessary to grow crops or raise animals for fibers and have created vertically integrated manufacturing supply chains, managing everything from spinning yarns to complete garment construction to serve their own domestic apparel markets. This means that a sourcing professional could—depending on the product—complete entire garments in one country.  

Brazil grows its own cotton, produces fabric, and manufactures products,” David points out. “That’s one of the reasons SOURCING at MAGIC is focused on offering more Brazilian exhibitors. The flip side is that manufacturing in Brazil can be comparatively expensive due to higher labor costs. However, it can compete because the benefits of vertical integration outweigh the labor costs. If there are certain items that you can afford to make with less pressure on margin, you may consider making them in Brazil because of the high quality and design capabilities."

Similarly, sourcing professionals can impact costs by combining the expertise and products of neighboring nations. Paraguay, for example, is very good at manufacturing. Brazil can quickly and economically ship textiles to Paraguay where they can be made into garments.  

ProColombia points out that Colombia is the only Central American nation with ports in both oceans. Geographically speaking, it can easily export to the rest of the countries in South America, so companies that establish factories there can supply other markets, growing operations both to the North and the South. 

 

FREE TRADE AGREEMENTS 

Often governments will have agreements in place to stimulate trade and good relations with their neighbors. In the Western Hemisphere, beyond the United States-Mexico-Canada Agreement, entered into in 2020, there are also incentives for doing business in Central and South America. Free trade agreements exist between the United States and Chile, Colombia, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, and Peru. Agreements and tariffs are under constant change in today’s volatile political environment, so asking about current arrangements should be one of the first conversations with perspective manufacturing partners. Free trade agreements (FTAs) offer significant advantages to fashion producers by reducing tariffs and trade barriers, which lowers production costs and enhances competitiveness.

 

SUSTAINABILITY AND ETHICAL PRACTICES

Because nearshoring reduces shipping distances involved in getting products to the United States, it has a corresponding effect on carbon footprint. As investment in new manufacturing facilities in Central and South America rises, other sustainability efforts come into play, including modern factories that use less water and incorporate recycled materials into fiber and fabric production. Programs that support working mothers and Indigenous labor forces are also growing in importance.

McPherson also points out something called the transparency premium or radical transparency. "Proximity in sourcing facilitates unprecedented transparency in the supply chain. This increased visibility not only aids in quality control and ethical compliance but also provides valuable narrative elements for brand storytelling, meeting the growing consumer demand for transparency in production."

Jessica Kelly at Nest leads a team that helps brands source specialty handicraft products from such artisans, ensuring companies’ compliance in the sector. 

Says Kelly, “I have encountered a lot of factories [in South America] that are incredibly sustainability focused, but there isn't a one size fits all approach to sustainability. An on-the-ground supply chain contact will give better understanding and insight into what works for the region, and the challenges that come along with it. It's important to have an open conversation, exploring the different ways processes can be improved, reducing impact and improving ESG targets. It’s easier to build that trust when you can go and have dinner with the team, get to know their kids, and understand their lives, taking yourself and your own judgment out of the equation. 

ProColombia gives the example that the government works to provide a bridge between industry and the country’s indigenous communities who create niche products that are an outgrowth of their heritage and culture, like jewelry or bags. Yet teaching companies to respect the indigenous beliefs is also important, encouraging them to understand, for example, that production may stop because religious edicts forbid making products when it rains. 

Similarly, because of Colombia’s history of political troubles in the 1980s, there are programs that train former guerillas, providing them with the skills they need to work in factories in the apparel and textile sector, making a positive contribution to society.  

Both examples can contribute to a brand’s overall sustainability commitment and provide great stories that can be passed along to the consumer.  

 

Creating a diverse sourcing plan is key, so for U.S. businesses, understanding the advantages of nearshoring in the Western Hermpishere can aid in the creation of that plan. Considering logistics, MOQs, sustainable practices, and more, will all play a role in decision making. At SOURCING at MAGIC, we have a robust education schedule to help sourcing professionals navigate hot topics like nearshoring, as well as other industry leading conversations. Check out our Education Schedules at SOURCING at MAGIC Las Vegas and New York to learn more. Also, check out our online resources like our Country Guide Library with guides that dive into the benefits and advantages of sourcing in countries such as Brazil, Colombia, Mexico, and more. 

 

 

Learn more about nearshoring at our upcoming SOURCING at MAGIC events in Las Vegas and New York. 

 

 

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