Nearshoring: Navigating with Eyes Wide Open
There has been so much talk these days about Nearshoring, Onshoring, Friendshoring - ultimately all meaning “manufacturing someplace other than halfway around the world from your primary marketplace.” And yet for all the banter in our Footwear and Apparel Industries … there is very little fresh activity. Many small footwear brands are starting to source from Mexico for the country’s amazing hand crafting capabilities, but otherwise we are hearing very little from medium sized brands and only “We looked at it and it doesn’t pencil for us” or something similar from large brands. Apparel is similarly stuck – there has been some “Basics” Apparel production in the Central American region for some time, but few groups are moving to the region and bringing new or different capabilities.
So what does all this mean? We think it means that brands are going into the conversation with a set of expectations that may not be realistic or fully informed. Surely when the big footwear and apparel brands ventured into China and Vietnam in the 1980s, they had more of a Pioneering Spirit. They knew there would be hardships and obstacles to overcome, but they were hellbent on achieving success because they knew it was the right thing to do at the time. When facing these sorts of obstacles today, it feels like brands are saying, “It can’t be done until something changes,” without knowing that THEY are the change that needs to push forward.
We prefer that you know in advance what you should be thinking about, and go in with Eyes Wide Open:
1st: KNOW YOUR WHY
Understanding why companies are drawn to nearshoring is the first step in this journey. So many groups really cannot explain their “why” specifically. If brands are fleeing regional geopolitical concentration and associated risk and believe that Mexico provides safety relative to e.g., China, fine. However, they should also know that over the past 18 months, Chinese companies have leased up to 80% of industrial park space in Mexico (see article). If Nearshoring doesn’t resolve the risk but only moves it one link further up the supply chain, is it really the right solution?
Move Incrementally: Many go into the discussion as “all or nothing” when in reality we should be moving incrementally. Emphasizing the importance of a gradual approach is crucial. Instead of going all-in, start with a manageable target percentage of manufacturing nearshore, maybe 10% over 3 years. This cautious approach allows for adjustment and learning without overcommitting. But anything over 50% just recreates the risk scenario again and swings the pendulum too far into one region.
Identify the right products: Selecting the right products or segments for nearshoring is a key consideration. Focus on items that benefit from shorter lead times or rapid replenishment. One of the most significant benefits of nearshoring lies in the ability to enable faster responses to market demands, particularly in dynamic industries like apparel and footwear. Likewise think of rapid response to athletic (the Super Bowl) or entertainment (Barbie Effect) events and understand how you can capitalize on those moments more effectively.
2ND: UNDERSTAND UNRESOLVED CHALLENGES
Know that a number of important issues and concerns persist:
Labor Availability: Acknowledge concerns about labor availability, especially as more and more companies nearshore. While it may not be a significant problem currently, it’s crucial to monitor as the landscape evolves.
Materials Ecosystem: For footwear, Mexico has been primarily focused on making shoes for the domestic market. There has been little demand for the more advanced engineered textiles or other specialty items. In apparel, the technical fabrics have yet to find their way nearshore. Understanding these constraints can help you make informed decisions.
Shipping Complexities: While Mexico is the only country besides Canada that shares a border with the US, there are still challenges getting product into the marketplace. And DTC fulfillment in particular from Mexico can be prohibitive. One recent quote for shipping a single pair of average sized footwear (1 kg) from Central Mexico to the US was $75.00.
Security: This is a constant worry for good reason. The fear of the unknown is strong.
3RD: COMMITMENT AND PARTNERSHIP
Nearshoring demands an unwavering commitment from all stakeholders involved. It requires persistence and determination. But what we are seeing today is both brands and suppliers taking a “who will blink first” approach …. each wanting the other to move first. But true partnership is critical – not just any partner but the right ones. Collaborative relationships with local partners can make or break your efforts – they will understand local nuances. Leveraging these partnerships involves more than transactional connections – build synergistic relationships where both parties work together to overcome challenges and seize opportunities. Involve your partners in co-creating your nearshoring strategy – not only on logistics but how the whole system aligns to broader business goals and market dynamics.
In the end, nearshoring must be a strategic journey that requires commitment, partnership, and an Eyes Wide Open approach. Companies that can sustain all of these will be better positioned to navigate the complexities and emerge as winners.
Zefyr consulting is ready to partner and support you on that journey. We have the expertise and network in the Americas, Europe, and Asia to help you bring your supply chain closer to your consumers. Contact us today to explore how we can work together to make this journey a success for your company.