Nearshoring vs offshoring has been on the minds of many U.S. importers. The current challenges facing the supply chain have made importing from offshore suppliers more difficult than before. Some importers are considering a switch to nearshoring, while others want to continue to offshore. That said, what makes these two methods different?
Nearshoring and offshoring are two methods of outsourcing business operations. In this instance, a nearshore supplier is geographically closer to the U.S., making transit times shorter and import regulations relaxed. Offshore suppliers are across the globe, but goods from these countries are cheaper and labor costs are lower.
Besides what we’ve listed, nearshoring and offshoring each have a plethora of unique advantages that we’ll discuss.
Nearshoring is a method of outsourcing certain business operations to a country that is geographically closer to the host country. Due to the logistical challenges that can occur when goods are imported from far away countries, many U.S. business have begun using manufacturers and suppliers in nations closer to home.
Logistically speaking, nearshore vs offshore outsourcing is extremely beneficial for U.S. companies that need to import the commodities they sell.
These benefits include:
Each of these benefits resolves the problems faced by companies who offshore their supply operations.
One nearshore outsourcing advantage is the speed at which goods arrive. Companies that import goods from countries that are geographically closer to the one they reside in will enjoy shorter transit times. There are also fewer obstacles that can lengthen transit times for imported goods when they travel from a nearshore country.
For example, many ocean ports in the U.S. were overwhelmed with freight during the pandemic. Even with port congestion beginning to tapper off, imported products will still arrive much faster from a nearshore country than one further away.
Additionally, importers can receive their goods via truck or rail if it’s coming from a nearshore country that shares a border with the United States. This allows American companies to bypass all the delays that come with shipping by sea.
Lastly, nearshore manufacturers and suppliers are usually in the same time zone as U.S. importers. If not, a nearshore partners is only a few hours ahead or behind. This allows U.S. importers to easily schedule the arrival of their shipment.
Our article on the advantages of nearshoring will provide you with more information.
The U.S. has regulations for imports of just about every variety. While regulations do serve a purpose, they can make importing difficult because of the extra responsibilities that importers have to follow.
Nearshoring your supply operations to Canada or countries in Central and South America can help you avoid excess regulations. That’s because the U.S. shares free trade agreements (FTA) with these countries that can remove certain barriers to trade, such as:
Challenges like these arise when importing from any other country, but are bypassed when importing from a nearshore country that is part of a U.S. FTA or other economically based treaty agreement.
Some FTAs and trade treaties the U.S. has established with nearshore nations include:
Any country that is a part of one of these trade agreements makes for a good location to nearshore supply and manufacturing operations thanks to the unique perks offered.
Our article on U.S. free trade agreements will provide you with more useful information about how FTAs can help you.
Importing goods from a country that is closer in geographical proximity is also cheaper compared to importing from a country half the world away. One reason for cheaper import costs with a nearshore company is due in part to the FTAs we mentioned prior.
FTAs also reduce or eliminate the duty rate on imports from a certain country. Therefore, importing from a nearshore company that is part of one of the FTAs we listed above will carry the same benefit.
The proximity of a nearshore country and your own also lead to cost savings. Not only will importing from a nearby country lead to shorter transit times, as we mentioned, but it will also be cheaper because less money will have to be spent on fuel. The less distance your goods will have to travel, the less fuel is used.
To find out more about costs you can incur while importing, check out our guide to taxes on imported goods.
Nearshoring benefits U.S. importers because there are fewer challenges to conducting business with nations that are geographically close. The U.S. has numerous FTAs with many of the countries surrounding its borders.
These agreements reduce many of the challenges that come in the form of tariffs. The U.S. also has excellent diplomatic relations with Canada and most countries in South and Central America. This helps facilitate better trade between domestic importers and nearshore suppliers.
Communication can be a challenge importers have to deal with when they conduct business with offshore manufacturers. Fortunately, this isn’t as much of a problem with nearshore suppliers. For example, English is one of the primary languages in Canada. This will make communication between U.S. importers and their Canadian counterparts easier.
Interactions with Latin American countries won’t be difficult either. Spanish is the primary language in most of these nations. However, this is also a popular language in the U.S. as well. Importing businesses that are using Latin American suppliers or manufacturers only need a translator to accurately communicate.
This nearshore outsourcing advantage will help businesses in the U.S. hire avoid various challenges than they import.
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Offshoring is essentially the complete opposite of nearshoring. Rather than outsourcing operations to a country geographically closer to your country, offshoring outsources operations that are typically overseas.
Currently, China is the country of choice that U.S. companies use to outsource their operations. While offshore countries are usually further away, many U.S. companies import products from manufacturers and suppliers in these nations.
Offshoring might not be the most useful method of outsourcing manufacturing or supply operations when the supply chain is wrought with delays. However, there are still many benefits of using offshoring that can benefit your business, which include:
These advantages of offshoring are a big reason why so many U.S. companies prefer to use supplier and manufacturers half the world away.
While there are many types of products that can be imported from countries close to the U.S., there are many others that are only accessible from nations that are further away. This is one benefit of offshore vs nearshore outsourcing.
Far away countries such as China have resources that nearby nations might be lacking. Offshore partners may also have access to better facilities and use reliable manufacturing strategies. This ensures U.S. businesses that the goods they import will be top quality.
Importing from suppliers in nearshore countries is cheaper because of the short distance goods have to travel. However, receiving goods from an offshore manufacturer can also be cost-effective for U.S. businesses. Many of the products made in offshore countries are much cheaper than ones produced in nearshore nations.
This helps U.S. importers offset the costs of the long ocean voyages their products will have to travel. China is frequently used as an offshore country that makes more affordable goods. That said, there are many other nations in Asia that have reliable suppliers.
This offshore outsourcing advantage allows U.S. businesses can import cheap products from suppliers in these countries.
Another offshore outsourcing advantage are the incentives that U.S. importers can use. Many of these far away countries are considered developing nations. Since these nations are eager to improve their economic standing, many of them welcome foreign businesses that are interested in conducting operations in some capacity.
As a way to attract more business within their borders, offshore countries offer tax breaks and other financial incentives. Factors like these make offshoring operations to another country more feasible for businesses and business owners.
Setting up outsourcing operations in these will also allow you to set up a foothold in your chosen nation. Expanding into an international market can be beneficial to your business for the following reasons:
With your business reaping these benefits of offshoring, you’ll company will reach a height that wasn’t previously possible.
Nearshore vs offshore outsourcing each have unique benefits. That said, each method of outsourcing is good for certain situations. Nearshoring is the best option to use when you have to abide by strict time constraints. Importing goods from these countries doesn’t take as long as it would from an offshore company.
Additionally, nearshoring is a great option when the supply chain gets backed up and shipments from overseas start to become delayed. The importing process will go much smoother when importing from a nearshore company thanks to FTAs.
Offshoring makes for a great option if you don’t have the money to outsource to slightly more expensive nearshore companies. Thanks to offshoring, you’ll have to be able to hire skilled labor to make products with quality materials at a lower cost. Incentives from the host government your offshore operations take place will make operations more financially convenient for your business.
Regardless of which option you choose, outsourcing isn’t going to go away anytime soon, as the table below shows.
|Percent Of Jobs That Are Outsourced For Cost Reduction||70 Percent|
|Percent Of Small Businesses Outsource For Efficiency||24 Percent|
|In 2019, the Entire Global Outsourcing Market Had A Value Of||$92.5 Million|
|Large Companies||Are 69 Percent More Likely Than Small Businesses Are|
Knowing when nearshoring vs outsourcing should be used is extremely important. As long as both are used correctly, companies will reap the benefits.
At USA Customs Clearance, we can help you import from a nearshore or offshore supplier. We provide an array of goods and services to our customers that will help them bring their commodities into the country.
These services include:
Get your continuous customs if you’re ready to import or access one of our other services. You can also contact our team at (855) 912-0406. They can answer any questions or concerns you might have.
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