There is a growing appetite for 'nearshoring', that is moving production closer to its ultimate end-market, among international companies, according to a new study.

The study released by global business-advisory firm AlixPartners included a survey of nearly 250 senior-level executives in Western Europe and North America from manufacturing and distribution companies in 20 industries.
 
In the wake of China’s recent devaluation of the yuan, companies need to be more strategic than ever in their manufacturing-sourcing decision-making, focusing on clear-headed, case-by-case analysis and tight project management, said the study.
 
A total of 32 per cent of executives in Western Europe and North America said their companies have recently nearshored manufacturing production or are in the process of doing so, with 49 per cent of Western European businesses expected to nearshore some or all of their operations within the next three years.
 
For those identifying nearshoring as an opportunity, 85 per cent of Western European firms said it is very or somewhat important, with 27 per cent admitting that nearshoring decisions are more important today than they were a year ago – though 71 per cent said such decisions are 'about the same.'  
 
Among Western European respondents, 38 per cent cited Eastern Europe as the most attractive nearshoring destination, followed by Western Europe at 16 per cent and Turkey at 15 per cent.
 
Emergent regions, such as North Africa and the Middle East, were also cited as attractive nearshoring destinations, but only by seven per cent and six per cent respondents, respectively.  About 17 per cent of respondents cited regions outside of the aforementioned areas.
 
Meanwhile, 55 per cent of North American respondents confirmed that the US remained the most attractive nearshoring destination, followed by Mexico at 31 per cent.
 
The availability of skilled labour was cited as the biggest challenge for 48 per cent of both European and North American firms.
 
The maintaining of product and service quality and consistency is also a factor of concern for 41 per cent of Western European companies, more so than for North American firms (33 per cent).
 
Other challenges near the top of the list were working through local government regulations, labour costs and personnel-management and labour-law issues.
 
The concerns about stability and security in both established nearshoring locations and emergent regions, such as North Africa and the Middle East, also remained a key consideration for businesses in their decision-making, said the study.
 
 About 41 per cent and 45 per cent of global respondents said they expected the security situation in Middle East and North Africa, respectively, to worsen somewhat over time; however, they recognised that assessments of these two regions are less certain than for other regions.
 
In contrast, about 61 per cent of business leaders in the survey said they expect an improvement in the security outlook in Eastern Europe, their top preferred nearshoring destination, which may in turn hasten Eastern Europe’s power to command higher labour rates, and possibly risk the region’s popularity.
 
Despite some of these concerns, there have been numerous benefits to nearshoring cited by respondents. Lower freight costs, improved speed-to-market and customer service improvements were seen as the biggest benefits of nearshoring across both Western European and North American firms.
 
The study also suggested that the benefits of properly addressing and working through nearshoring issues can be significant.  
 
According to the survey, the average estimated savings from nearshoring cited by all respondents was 8.5 per cent globally, up from 6.3 per cent last year.
 
The majority of respondents globally forecast savings of zero to five per cent; however 63% of Western European firms estimate total landed-cost savings of six to 15 per cent, it said.
 
Andrew Bergbaum, managing director at AlixPartners, said:  “Recent moves by China to devalue the yuan make already-complex manufacturing-sourcing decisions all the more complicated.  
 
"These recent actions prove, as does our recent survey, that the world of manufacturing and supply chains is world of constant flux, and that in such a world there’s no substitute for deep, strategic, case-by-case analysis and tight project management.” - TradeArabia News Service