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Nearshoring: definition & important aspects for buyers
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Nearshoring in a nutshell:
Nearshoring describes the outsourcing of business processes and production activities to geographically close countries with more favorable cost structures. For procurement, this strategy enables an optimal balance between cost savings and controllable risks through shorter transportation routes, similar time zones and cultural proximity.
Example: A German automotive supplier relocates its plastic parts production from China to the Czech Republic, reducing transport time from 35 to 3 days, cutting logistics costs by 40% and minimizing communication problems at the same time thanks to the maximum time difference of just 1 hour.
Contents
What is nearshoring?
Nearshoring refers to the relocation of business processes or production sites to geographically nearby countries or regions. In contrast to offshoring, where activities are outsourced to distant countries, nearshoring utilizes the advantages of shorter distances, cultural similarities and often similar time zones. This facilitates collaboration and communication between the company and external partners.
Core elements of nearshoring
Relevance for purchasing
Nearshoring is becoming increasingly important in procurement management as it enables a balance between cost savings and efficient supply chains. Buyers benefit from faster delivery times, lower transportation costs and greater flexibility in adapting to market changes. In addition, proximity minimizes the risk management of supply chain disruptions and facilitates on-site quality controls.
Whitepaper: Nearshoring - Strategies and best practices for successful production relocation
Nearshoring: From offshoring to regional cooperation
The global relocation of business processes to distant countries has long been a dominant trend in order to realize cost advantages. However, practice has shown that offshoring is often associated with challenges such as time delays, quality problems and cultural barriers. In view of increasing uncertainties in global supply chains and the need for greater agility, companies are increasingly turning to nearshoring. This approach enables closer collaboration with nearby partners while promoting efficiency and flexibility.
Old: Offshoring
Traditional approach: In offshoring, business processes or production activities are relocated to distant countries, often to Asia or South America. Companies mainly used this approach to benefit from low labor costs and lower process costs. Typical sectors were the textile and electronics industries, which are heavily dependent on cheap labor. Tools and systems such as ERP software were used to manage the complex international supply chains. However, differences in time zones, language and culture led to communication problems. In addition, political instability and long transportation routes increased the risk of disruptions. Lead times were often long and flexibility in the event of changes in demand was limited.
New: Nearshoring
Nearshoring: The modern approach of nearshoring relocates processes to geographically nearby countries, often within the same region or economic community. Innovative technologies such as digital collaboration platforms and automated logistics systems support this strategy. Nearshoring offers improvements such as shorter delivery times, reduced transportation costs and easier communication through cultural and linguistic similarities. In practical terms, this means that companies can react more flexibly to market developments and security of supply increases. For example, production orders can be adapted more quickly and quality controls are easier to carry out. In addition, nearshoring promotes sustainable practices through lower CO₂ emissions in transportation.
Practical example: Automotive industry
A leading German car manufacturer decided to relocate parts of its electronics production from Asia to Eastern Europe. By nearshoring to a neighboring EU country, delivery times were reduced by 50%. Transportation costs fell by 30% and communication channels improved considerably thanks to common language levels and cultural understanding. As a result of this change, delivery reliability increased to over 98% and overall supply chain costs were reduced by 15%. In addition, the geographical proximity enabled increased cooperation in research and development, which led to innovative products and faster market launches.
Conclusion on nearshoring
Nearshoring offers companies a strategically important alternative to traditional offshoring. The combination of geographical proximity, cultural similarity and optimized cost structures enables more efficient supply chains and reduced risks. Especially in times of global uncertainty, nearshoring is proving to be a sustainable procurement strategy that guarantees flexibility and security of supply. However, careful supplier selection and systematic change management are essential for successful implementation.
