Choosing the right shore to do business on is more than considering hourly rates and shipping costs. It's important to discuss the pros and cons that accompany each location. So, what are the "shoring" options for modern American businesses?
Onshoring
Onshoring means you're working with a vendor within the same country where the goods are being consumed. For American companies, this means hiring a manufacturer in the United States.
Starting off on the right foot with your product can mean the difference between success and failure. Manufacturing your product in America allows you to respond quickly to market trends, consumer demand, and economic shifts.
Americans, as well as foreign citizens, are willing to pay higher prices for American-made items. Fueled by the COVID-19 pandemic, more Americans are looking for products made in their home country as opposed to those made in foreign manufacturing hubs.
Offshoring
Offshoring refers to outsourcing your manufacturing to a country other than the one in which your target market is located. Offshoring is typically accompanied by:
- Longer shipping times
- Higher transportation costs
- Decreased flexibility and responsiveness to consumer demand
There are many other hidden costs of offshoring that can cripple your supply chain (and sometimes your entire business). Some unexpected issues that can negate any cost savings include:
- Changes in foreign economies
- Energy prices
- Resource availability
- Real estate price fluctuations
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The main benefit of offshoring your manufacturing is the cost of labor savings. Many countries overseas haven't caught up with America's high cost of living or minimum wages. However, as foreign countries industrialize and modernize, many are shifting to adopt policies that increase wages and improve quality of life - which means those low manufacturing costs won't stay low forever.
Near-shoring
Near-shoring is technically a form of offshoring. You're outsourcing to a nearby country (Canada or Mexico) to benefit from shorter lead times and increased flexibility while taking advantage of lower labor costs or some other benefit.
Near-shoring may be appropriate for companies who are located close to the borders, who are struggling to find an adequate domestic manufacturer, or who are targeting prospects who prefer goods produced in those locations.
Reshoring
Reshoring refers to companies that have or had a vendor offshore, but are looking to switch to an onshore vendor.
If you're looking to reshore your manufacturing due to rising costs overseas, supporting the local economy, decreasing lead times, or many other reasons, now is as good a time as any. Energy costs are low, real estate is a steal compared to India or Japan, and Americans are hungry to bring good, well-paying manufacturing jobs; goods; and manufacturing back to the United States.
As mentioned earlier, Americans are also more concerned with purchasing domestically manufactured goods, too.
What's your "right-shore"?
Every company is different. Some American-based businesses truly benefit from offshoring or near-shoring their manufacturing. For most, however, offshoring isn't nearly as beneficial as it used to be.
While many countries that offer outsourced manufacturing still keep wages much lower than American wages, that's truly the only benefit to an American company that markets their goods to the American public. Onshoring or reshoring your manufacturing is simply a smarter move for most modern businesses.
