The nearshoring revolution is just beginning, says AlixPartners’ report

劳动costs, trade regulations and economic pressures are causing a major shift in the global supply chain, and manufacturers are at the forefront of this change.

A new report from AlixPartners, “Shifts in the Global Supply Chain and the Impact on Nearshoring,” finds that even with the rise of automation changing the cost dynamic, the question of whether to nearshore remains a complex one.

“The impact of globalization and free trade is a heavily debated topic among scholars, economists, and policymakers,” the company wrote in the report. “For the first time, we are witnessing an emerging trend driven by a number of catalysts and external factors that are redefining the ‘comparative advantage’ equation, while balancing it with social and domestic agendas.”

The global consulting firm noted that “market-by-market variations in labor costs; evolving trade regulations, especially those driven by automation and technological advances; ongoing economic pressure; and the reality that companies still need a global business plan to navigate in this complex environment and cultivate profitable growth” make for difficult decisions for executives.

“The U.S. is at the forefront, making the case for in-region production, especially for strategic industries linked to energy, infrastructure, technology, and security,” it said. “Domestic policies and incentives support the argument for locating facilities in and near the U.S. that otherwise may have been located on the other side of the world. Automation, meanwhile, is changing the economics behind this decision.”

In its analysis, AlixPartners concluded that while China may still be cheaper based on “landed costs,” the total cost of ownership (TCO) will still drive the decision-making. Automation that reduces labor dependence and local sourcing of raw materials and components are making the case for more nearshoring, it said.

“Automation is soaring. Companies invested over $2 billion in the U.S. for nearly 40,000 robots in 2021 alone. This investment in automation can serve as the cornerstone for a domestic manufacturing ecosystem in which increasing levels of scale will be achieved, and the economics of nearshoring will consistently improve,” the report noted.

This was helped along in the past few years by the passage of several new regulations and legislation in the U.S., including the CHIPS Act, Infrastructure Investment and Jobs Act, Inflation Reduction Act, and the Build America, Buy America Act, as well as the introduction of tariffs in the 2018 to 2020 timeframe on imported goods from China to the U.S.

“While some of the previous regulations (e.g., Buy American Act) have been in effect for decades, the new laws/ incentives (IRA, IIJA, CHIPS and Science Act) and stringent regulations requiring local manufacturing and higher local content per the USMCA and BABA are forcing companies to rethink their nearshoring strategies,” the report said. “These incentives and policies should be viewed as strategic funding support, which, when coupled with automation, can bring down the cost of procurement and reductions in tariff and freight expenses.”

The analysis in the report was conducted using AlixPartners’ Global Trade Optimizer platform. The GTO, it said, was created to “find opportunities in a challenging environment by mapping the value stream and analyzing trade-offs that exist when sourcing locations are moved.”

“美国可能在近岸的开始revolution as the total-cost-and-risks-of-ownership (TCRO) equation in a disaggregated supply chain is being re-written by technological advancements (AI/generative AI and automation) along with policies and regulations,” AlixPartners summed up. “It has the potential to leave permanent marks on the global supply chain across many sectors. The factors driving the business case for companies to participate in nearshoring are becoming clear, consistent, and far-reaching and the number of industries affected by it will expand as the ecosystem evolves. The need for a solid strategy, effective tools, and real-time comprehensive analysis, however, will not change.”