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Why the Nearshoring Boom Marks the End of Globalization

Companies in the United States are rapidly reshoring. Here’s how to capitalize on that trend.

The world’s growing interconnectedness has unfortunately exposed weaknesses across the global supply chain. In recent years, supply chain decision makers have needed to adapt to a global pandemic, an ongoing trade war between the U.S. and China, and most recently, added complications from the Ukraine war, which has resulted in a restriction of raw materials out of Ukraine and Russia.

For the first time in 30 years, the ecological myth of “globalization,” which has sought profits by removing trade barriers and seeking cheaper labor and resources while proclaiming “only ONE earth,” may be collapsing.

“The decade to 2030 is likely to be one of transformation for global value chains (GVCs), reshaping the global trade and investment landscape”, said James Zhan, director of investment and enterprises at the United Nations Conference on Trade and Development (UNCTAD).

What kind of evolutionary processes are businesses planning to thrive in this changing environment? According to McKinsey & Company, 71 percent of chief procurement officers (CPOs) surveyed last November plan to increase their nearshoring share by 2025, with 24 percent considering nearshoring in the same market where it currently operates.

Will nearshoring spark the end of offshoring?

With this is mind, offshoring, in which suppliers operate in countries with low labor costs, is coming to an end. On the other hand, nearshoring, which is the practice of relocating a business operation to a nearby country rather than a more distant one, is gaining traction.

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For example, a California-based toy manufacturer announced this year that it would consolidate its manufacturing facilities at a plant in Monterrey, Mexico. To that end, the company is closing two Asian plants and investing $47 million in its Mexican facility. The company’s emphasis on supply is shifting away from cheaply procured larger quantities and toward receiving consistent delivery, even if it is more expensive.

The U.S. government appears to be actively participating in the trend of creating this new nearshoring ecosystem, with the current administration focusing its actions on Central America in particular. President Joe Biden has recently encouraged industry representatives, such as American Apparel & Footwear Association (AAFA) members, to invest in strengthening cooperation with the Central American Triangle countries that have signed the CAFTA-DR free trade agreement.

Global companies with a high proportion of sales in the U.S. are experiencing an innovative transformation. Throughout its 40 years of history and expertise in apparel manufacturing, global fashion vendor Hansae Co. Ltd. has continuously grown and been recognized in its field. With partnerships with more than 30 buyers and retailers in the U.S., the company exports about 400 million pieces per year. The company has 10 distinguished apparel manufacturing factories in Central America (Guatemala, Nicaragua, and Haiti).

Hansae is gaining attention because it is making a large-scale investment in Guatemala to meet these buyers’ nearshoring needs. In this burgeoning environment, Hansae’s future-oriented investment is gaining importance, and the company anticipates further development and growth across these markets.

More information about Hansae’s investment in Central America will be revealed in an upcoming article. Learn more about Hansae Co. Ltd. here.