Nearshoring: A Strategic Tool for Resilient Electronics Supply Chains

As companies prioritize supply chain resilience and agility, nearshoring will remain a cornerstone strategy for navigating uncertainties and ensuring business continuity.

Adobe Stock 449245225 (2)

Electronics manufacturers face the urgent task of strengthening their supply chains amid trade disputes, geopolitical tensions, and the unpredictable impact of climate change events. Making sure everything runs smoothly, works well, and stays secure is key to long-term success. For manufacturers of electronic products, it's crucial to keep a close eye on every step of the process, from getting parts to making and delivering products.

To combat these multifaceted challenges, many are now turning to reshoring and nearshoring strategies. These approaches build resiliency into supply chains and provide solutions to the pressing issues manufacturers confront daily.

Diversified Supply Chains are More Resilient

Electronics companies today are relying more on supply chain and manufacturing diversification as a key strategy. This approach acts as a vital shield against growing trade tensions, political uncertainties and the increasing occurrence of natural disasters.

By spreading their sources for electronics components, locations for sourcing, and manufacturing bases, companies are fortifying themselves against potential disruptions. This strategy not only improves their bargaining power but also enhances their agility in responding to market demand shifts.

Embracing Nearshoring for Supply Chain Diversification

Nearshoring plays a pivotal role in diversifying supply chains by relocating manufacturing operations closer to end markets. This approach helps companies reduce their reliance on single-sourcing locations and lowers the risk of disruption. By spreading production across multiple geographic regions, nearshoring creates a supply chain that is both resilient and flexible.

Moreover, nearshoring offers easier access to local suppliers and resources, allowing companies to quickly adapt to changes in market demand and supply chain dynamics. For electronics companies seeking to diversify their supply chains, nearshoring is a powerful tool to increase resilience against disruptions.

China Plus One

Ongoing unease about the stability of the Chinese economy, United States trade tensions with the country, and continued uncertainty about China’s potential future actions towards Taiwan are leading many electronics manufacturers to reconsider their reliance on that country for manufacturing electronics components and PCB assembly. Facing an unpredictable future, these companies are broadening their strategies.

Many have adopted the "China-plus-one" strategy. This approach means maintaining operations in China while also establishing a presence in another country. Its goal is to mitigate risks and ensure business continuity. This strategic move reflects a broader trend toward factory flexibility and resilient supply chains, driven by digital technologies and a focus on sustainability.

Another emerging practice involves the utilization of factory networks. These networks streamline PCB assembly and system integration, facilitating swift and efficient management of large orders. Moreover, they ease the transition to reshoring, fitting within or outside the framework of a China-plus-one strategy. The portability and flexibility of these factory setups enable consistent lead times and competitive pricing from various manufacturing facilities. This gives customers access to substantial production capacity while enhancing supply chain resilience.

Finding the Right Nearshoring Location

Networks of manufacturing facilities linked by technology-enabled platforms enable manufacturers to tap into unused capacity. Mexico, in particular, has become a nearshoring haven. The ongoing geopolitical tensions between the U.S. and China and the global restructuring of supply chains following the COVID-19 pandemic are expected to solidify Mexico's status as a prime nearshoring destination in the coming decade.

This is primarily due to Mexico's proximity to the U.S. market and its competitive labor costs, which make it an attractive option for companies seeking to diversify their manufacturing operations. As businesses prioritize resilience and agility in their supply chains, Mexico's strategic location and cost-effectiveness are likely to make it a preferred choice for nearshoring activities, further bolstering its position as a leading player in the global manufacturing landscape.

In addition to a favorable labor market, Mexico also affords electronics manufacturers with intellectual property protections similar to those in the U.S. Also, due to numerous global agreements, electronics manufacturers who nearshore to Mexico are safeguarded by a wide-ranging network of trade and investment treaties covering over 50 countries, with the USMCA chief among those protections.

Overcoming Challenges with Expert Partners

Finding the right nearshoring facility–as part of a plus-one strategy or out of it– remains challenging, however.

Navigating unfamiliar markets can present many challenges for electronics manufacturers looking to reshore their operations. There is the time-consuming process of vetting a new facility, ensuring it possesses the necessary capabilities, skills, capacity, and quality standards to meet company needs. Carefully evaluating changes in cost structure due to labor costs, shipping, and other factors is also key to successfully reshoring. Language and cultural differences add another layer of complexity, requiring effective communication and understanding.

Perhaps the most daunting challenge when relocating production from a country like China, where electronics products may have evolved subtly over time, is managing the materials needed for production. Even when a product appears the same, changes may go unnoticed, requiring manufacturers to revert to their original specifications using globally sourceable parts. This may require time and expertise to essentially reverse engineer a product back to its original specifications.

Working closely with experienced partners can help to overcome these challenges by providing guidance, expertise, and local knowledge, in addition to helping to source materials and locate the best manufacturing facilities.

An expert partner with a deep understanding of both the local market and the intricacies of electronics manufacturing can offer valuable insights and support and make reshoring efficient and cost-effective. They can also align these operations with business goals. Moreover, by leveraging their expertise, they can prevent potential disruptions and quality issues before they happen.

Nearshoring: Recent Growth and the Future

While nearshoring may appear to be a new tactic for ensuring supply chain resiliency, the trend shows no signs of slowing down. A recent McKinsey survey found that nearly two-thirds of respondents were working with suppliers located closer to their production sites over the past 12 months. That’s double the share of companies who reported using those strategies last year.

Additionally, 64% of their respondents say that they are actively using nearshoring as a strategy to mitigate risks to their supply chain risks. As global uncertainty looms, it seems that nearshoring is, in turn, becoming a certainty in electronics manufacturing.

Mexico has already surpassed China as the largest supplier to the United States, with no real end to the trend in sight. S&P Global Market Intelligence projects that the trend will continue, projecting that U.S. imports from Mexico will surpass $600 billion by the end of this decade.

Maintaining robust and resilient supply chains is critical for electronics manufacturers to ensure smooth operations and security at every stage of the production process. Recognizing the importance of supply chain diversification, many companies are embracing strategies like reshoring and nearshoring.

Looking ahead, nearshoring is poised to continue its growth trajectory in the electronics manufacturing sector. As companies prioritize supply chain resilience and agility, nearshoring will remain a cornerstone strategy for navigating uncertainties and ensuring business continuity. With Mexico leading the way as a preferred nearshoring destination, the trend is set to reshape the global manufacturing landscape, paving the way for a more resilient and adaptable industry in the years to come.