Nearshoring, Friendshoring, Offshoring, Reshoring: Top 4 Global Trade Buzzwords Explained

Events of supply chain disruptions seemed to be less pronounced a few years ago. However, things have taken a turn for the worse in recent times. With supply chain research suggesting that disruptions are likely to occur every 3.7 years, there is a growing need for companies to be better informed and prepared to navigate supply chain disruptions.

As the popular saying goes, “In the midst of chaos, there is also opportunity.”, four global trade practices have regained prominence.

Nearshoring

A business practice wherein an organization transfers some of its operations and services to a nearby, neighboring country that falls in the same geographical region. Companies often adopt this practice in order to ensure faster speed-to-market transition from manufacturing to end-customers.

The ‘Trade in Transition Global Report 2023’ by the Economist Impact indicates that inclination towards nearshoring has increased by 8 percentage points since 2021. The shift towards regionalizing business operations has multiple advantages,including lower transportation costs and access to financial incentives from domestic governments. As of 2022, Canada and Mexico turned out to be America’s top trading partners

Real-World Examples of Brands That Adopted Nearshoring

Boeing

This American airline manufacturer’s nearshoring ties with Mexico trace back to the 1980s. Boeing tied up with a French manufacturer Safran that constructed a wiring factory in Mexico. This facility is responsible for most of the wiring within one of Boeing’s flagship aircrafts – the 787 Dreamliner.

Inditex

Based in Spain, the parent company of brands like Zara, Massimo Dutti, etc. Inditex has been nearshoring a significant portion of its operations to Morocco and Turkey. It manufactures textiles and clothing items in the countries nearby as opposed to popular but farther clothing manufacturing locations like India and Bangladesh.

Friendshoring

A growing trend where companies focus on building supply chain networks in countries that are regarded as political and economic allies, in order to avoid disruption to the flow of business. The rising preference for this trade practice is believed to stem from the recent economic distresses global supply chains faced, such as the COVID-19 pandemic and the Russo-Ukrainian war.

In the face of recent Russian sanctions, the United States, for instance, has decided to obtain raw materials from friendly countries to increase the security of domestic production and diversify its group of suppliers.

Real-World Examples of Brands That Adopted Friendshoring

Zalando

Zalando, an online retail company, has turned to friendshoring as a strategic response to recent geopolitical turmoil. Subsequently, the company reported spikes in stock value, a development that might be attributed to this strategic shift.

Apple

Apple is expected to relocate its iPhone manufacturing to India from China amid mounting geopolitical tensions and strict COVID-19 lockdowns in the latter. Currently only 5% of Apple products are made outside of China. However, recent research by JP Morgan suggests this could rise to 25 percent by 2025.

Reshoring

Also referred to as onshoring or inshoring, it’s when businesses transfer operations back to their home country. A Capgemini report, highlighting the locations where the majority of the organizations invested in 2022, revealed that 89% of the executives surveyed considered supply chain disruptions to be the greatest short term risk for their business.

Understandably, reshoring is often the go-to strategy employed when a company’s supply chains get deeply impacted by geopolitical disruptions. By doing so, businesses can make calculated moves in choosing their suppliers, ensuring that there are no operational roadblocks, and much more.

Real-World Examples of Brands That Adopted Reshoring

Ford

The pandemic exposed vulnerabilities in Ford’s supply chain and the company responded by making multi-billion-dollar investments in US manufacturing facilities that drive modernization and expansion. Ford’s reshoring is particularly significant in its electric vehicle (EV) manufacturing. The company continues to invest heavily in EV production in the US, with EV assembly plants and battery manufacturing facilities.

Caterpillar Inc.

One of the world’s leading manufacturers of construction materials and mining equipment, Caterpillar resorted to reshoring by transferring Japanese construction equipment production processes to Georgia and Texas. The company aimed to eliminate bottlenecks in critical, high-value and IP-constrained manufacturing processes that previously suffered the consequences of geopolitical instability and other disruptions.

Offshoring

As understandable from the name, this involves companies moving some or all of their business operations to another country, often in an attempt to reduce labor costs, ensure greater proximity to raw materials or access readily available employee skill sets. Several companies like Google, Amazon, General Electric, Apple, IBM, etc. have offshored their operations to countries across the globe.

Except for offshoring, companies often seem to adopt nearshoring, friendshoring or reshoring practices primarily to avoid supply chain disruptions.