Nearshoring Boom: The Rise of Latin America Manufacturing

The nearshoring boom has become a game-changer for manufacturers looking to optimize their supply chains. With supply chain disruptions and Asia’s declining manufacturing power, companies are increasingly turning to Latin America as a prime nearshoring destination. Latin America offers favorable cost and labor factors, making it an attractive option for manufacturers.

However, shifting operations from Asia to Latin America and navigating the challenges associated with operating in the region require careful consideration and strategic planning. The webinar “Nearshoring Boom. The Rise of Larin America Manufacturing” aimed to shed light on these aspects. Our expert speakers Adam Basson, CEO at FlexChain Holdings, Mauricio Dezen, SVP Operations, and Natalie Lopadchak-Eksi, VP of Partnerships at GMDH Streamline provided valuable insights into the nearshoring boom and the potential of Latin American manufacturing.

Supply chain benefits of Nearshoring

The supply chain benefits of Nearshoring in Latin America are numerous. The region offers cost advantages, thanks to lower labor costs and affordable energy. Additionally, Latin America boasts favorable demographics, including a skilled workforce and a growing consumer market. Trade agreements with countries like the United States and Canada further enhance the attractiveness of nearshoring in the region. Moreover, the geographic proximity to these markets allows for shorter lead times, improved communication, and easier collaboration. These factors make Latin America an appealing choice for companies looking to optimize their supply chains and gain a competitive edge.

“Let’s consider Neashoring from the financial perspective. There is a tremendous commitment to working capital to long lead times. It was comfortable 10 years ago because the whole planet had a very low-interest rate. The cost of money was very low,” – said Mauricio Dezen, SVP of Operations. “But now, when you think about 120 days of lead time from Asia, the cost of money is almost forcing companies to rethink their supply chains. Reaction time is a key and making money circulate in a smart way is going to be mandatory.”

Best countries for production in LATAM:

When it comes to production in Latin America, several countries stand out due to various factors such as labor costs, skilled workforce, infrastructure, and ease of doing business. The top countries for production in LATAM include:

Mexico

Mexico is known for its strong manufacturing sector, favorable labor costs, and proximity to the United States market. It offers a skilled workforce and has a well-developed infrastructure, making it an attractive destination for production. Mexico also has a stable political environment and a commitment to promoting foreign investment.

Colombia

Colombia has been gaining traction as a production hub in Latin America. It offers competitive labor costs, a strategic geographic location, and a growing economy. Colombia also has free trade agreements with several countries, facilitating international trade.

Chile

Chile boasts a stable economy, a skilled workforce, and a favorable business environment. It has invested significantly in infrastructure development and boasts a well-educated and skilled workforce. Chile’s commitment to innovation and technology further enhances its appeal for production.

Peru

Peru has seen remarkable economic growth in recent years, making it an attractive choice for production. The country offers competitive labor costs, abundant natural resources, and a strong mining industry. Peru’s government has implemented policies to promote investment and support business development.

Costa Rica

Costa Rica stands out for its educated and bilingual workforce, political stability, and solid infrastructure. The country has positioned itself as a leading destination for high-value-added manufacturing, particularly in the technology and medical device sectors.

Challenges and risks of nearshoring to LATAM

When nearshoring to Latin America, there are several challenges and risks to consider:

Supply chain disruptions: Transitioning production from Asia to Latin America may cause temporary disruptions in the supply chain, impacting delivery timelines and customer satisfaction.

Potential capital investments: Establishing manufacturing operations in a new region requires significant capital investments for facilities, equipment, and workforce development.

Intellectual property protection: Companies need to navigate intellectual property laws and ensure adequate protection measures are in place to safeguard their proprietary technology and information.

Skill matching: Finding and training a skilled workforce that aligns with the specific needs of the company can be a challenge during the transition process.

“Intellectual property protection is of great importance while considering a nearhoring. It’s also critical to make sure that the situation is secure, and that the political climate is stable. You have to go through all aspects and check all the boxes if you want a successful process,” – said Adam Basson, CEO at FlexChain Holdings.

How to Execute Nearshoring Effectively

To ensure the effective execution of nearshoring it’s important to use a crawl-walk-run approach. It means starting with pilot projects to assess the feasibility and gather insights. This approach allows you to learn from the experience and make necessary adjustments before scaling up production. It minimizes risks associated with large-scale implementation and provides an opportunity to fine-tune the process.

Understanding key variables is also helpful. Factors such as labor costs, market proximity, infrastructure, and regulatory environment should be carefully evaluated to make informed decisions.

The last point is utilizing planning software: make use of planning software tools like Streamline to model different supply chain scenarios. These tools help analyze and identify areas of the supply chain that offer the highest risk/reward potential. By leveraging such software, you can make data-driven decisions and optimize your nearshoring strategy.

By following these steps, you can enhance the effectiveness of your nearshoring initiatives and achieve desired outcomes.

The Bottom Line

To simulate different nearshoring scenarios and optimize decision-making, it is importnat to leverage the power of artificial intelligence by running a proof of concept. Streamline software utilizes AI algorithms to model and analyze various supply chain scenarios, helping you make informed decisions based on real-time data. By leveraging AI-powered analytics, you can accurately assess and evaluate the potential benefits and risks associated with your nearshoring strategy.