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The Great Nearshoring Shift: A Smarter Business Strategy for the Americas · Speaking of Supply Chain

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  Speaker 1: You're listening to Speaking of Supply Chain, a meeboch podcast.
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  Speaker 1: This is a show for logistics professionals looking to learn
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  Speaker 1: more about the latest innovations in supply chain. Each episode
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  Speaker 1: will feature a conversation on topics such as mitigating supply
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  Speaker 1: chain disruption and reducing risk, current automation trends, sustainability initiatives,
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  Speaker 1: and more. Let's dive right in.
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  Speaker 2: Hello, and welcome to Speaking of Supply Chain, where we
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  Speaker 2: explore trends, current events, and innovations impacting the logistics and
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  Speaker 2: supply chain industries.
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  Speaker 3: I am your host, Ellen Wood.
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  Speaker 2: As global uncertainties and economic pressure's mouth, companies are rethinking
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  Speaker 2: no manufacturing footprints. Near shoring to the US and Mexico
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  Speaker 2: is no longer just a trend. It's reshaping the manufacturing landscape.
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  Speaker 2: So in this episode, Jonathan Egan and I will examine
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  Speaker 2: the real world challenge and rewards of bringing supply chain
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  Speaker 2: and production closer to how Jonathan, Welcome, Hi.
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  Speaker 4: There, Ellen. It is an absolute pleasure to be on
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  Speaker 4: your show today.
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  Speaker 2: So we have a really interesting topic today which is
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  Speaker 2: near shoring and specifically to the Americas, to US and
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  Speaker 2: Mexico from China. And this is something that you have
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  Speaker 2: experienced with and from a strategy standpoint, what are some
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  Speaker 2: of the reasons that prompted the near shoring decision for
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  Speaker 2: your company specifically?
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  Speaker 4: Sure, well, for our company specifically, it was really catered
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  Speaker 4: to the customer. You're knowing what our customer wanted, and
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  Speaker 4: we you know, with the advent of the whole geopolitical
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  Speaker 4: daggering between China and the US. Obviously it's probably evidence
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  Speaker 4: to all of your listeners that the trade more tariffs
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  Speaker 4: that were implemented during the administration and then carried on
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  Speaker 4: through the Iten administration, and one of my key customers
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  Speaker 4: who had to look at the tea leaves and decided
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  Speaker 4: that the tariffs probably weren't going to go anywhere, and
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  Speaker 4: this basically propelled them to accelerate their plans to move
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  Speaker 4: certain programs from the Americas, well rather from north from
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  Speaker 4: the United States of America across the border to Mexico.
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  Speaker 4: And we were a key supplier to them on those programs,
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  Speaker 4: and so they invited us to go with them to Mexico.
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  Speaker 4: So that's really kind of for us. That's our own
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  Speaker 4: story there. I suppose to back up that up. Within
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  Speaker 4: about a year and a half of that. During COVID,
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  Speaker 4: which was a really difficult time for most people in
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  Speaker 4: supply chain, es partner and I were doing a trip
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  Speaker 4: to visit some of our customers on each and everyone
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  Speaker 4: said do you have any plans to exit China? That
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  Speaker 4: was a real wake up call to us that we
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  Speaker 4: needed to get our skates.
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  Speaker 2: On Interesting because I know some of the benefits that
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  Speaker 2: have been discussed in the realm of mere sharing, you know,
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  Speaker 2: the shorter supply chain, that the national security issues, quality
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  Speaker 2: control improvements, economics, job growth, all of those reasons.
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  Speaker 3: But what it really boils down to is the business.
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  Speaker 3: The individual business.
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  Speaker 2: Are they going to have a better return on whatever
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  Speaker 2: their investments are, whatever their business plan is, Where does
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  Speaker 2: it make the most sense to locate this production?
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  Speaker 3: And how long were you in China originally?
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  Speaker 4: Right? And you know, it's really a top level story
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  Speaker 4: that kind of cascades down ellen because you know, effectively
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  Speaker 4: this is a US see a national policy, and that's
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  Speaker 4: driving all of this. So there's that, But also during
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  Speaker 4: COVID people got to see how creaky, you know, supply
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  Speaker 4: chains can be, especially when you're dealing with factories that
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  Speaker 4: are thousands of miles away. You know, ports get congested,
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  Speaker 4: blank sailings, overseas, labor issues, et cetera. So we you know,
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  Speaker 4: there's been a huge focus on regionalization, localization of supply chains.
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  Speaker 4: And yeah, that's kind of effectively what has made our
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  Speaker 4: decision to move to Mexico.
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  Speaker 2: So is there a good business case a return on
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  Speaker 2: this investment because this is a major move, I mean
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  Speaker 2: it's a global move.
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  Speaker 4: Absolutely. Yeah, No, we had to look at it from
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  Speaker 4: every different angle. So yes, the business case so specific
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  Speaker 4: to our what we're doing, which is casting the die
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  Speaker 4: castings are casting of metal. You're looking at about ten
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  Speaker 4: to twenty percent, depending on the MODELI the profile of
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  Speaker 4: the part more expensive than China on a kind of
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  Speaker 4: X works basis, right, So if you're comparing part two
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  Speaker 4: the other, yes, Mexico is probably going to be slightly
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  Speaker 4: more expensive. But when you factor in freight tariffs, financing
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  Speaker 4: of your overseas spend, that's when Mexico starts to look
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  Speaker 4: a lot more interesting. So on the business case scenario,
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  Speaker 4: is everything going to be easier in Mexico? No, it's not.
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  Speaker 4: But depending on what you're looking to achieve, especially when
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  Speaker 4: you're adding extra layers of value, secondary processing, tertiary processing.
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  Speaker 4: That's when Mexico becomes really inviting.
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  Speaker 2: Do you feel like some of the technological advancements where
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  Speaker 2: the US and the Americas have fallen just in terms
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  Speaker 2: of not having done it for so long because so
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  Speaker 2: much was outsourced to China.
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  Speaker 3: Do you feel like that's going to be a factor.
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  Speaker 2: In balancing that ROI that there's going to be that
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  Speaker 2: learning curve of making sure that the labor force that
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  Speaker 2: is here in the Americas is brought back up to
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  Speaker 2: speed to where China has advanced beyond our capabilities just
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  Speaker 2: because there wasn't a need, there wasn't a demand for it.
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  Speaker 4: Yeah, well, that's an interesting topic and that's a podcast
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  Speaker 4: in itself Allan stot On. You can read great essays
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  Speaker 4: about that online. Going from Neutron Jack in the eighties,
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  Speaker 4: you know the famed exge CEO who started he miss Well,
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  Speaker 4: he was one of the proponents of outsourcing, you know,
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  Speaker 4: starting in the eighties, that's when the whole Chinese miracle started.
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  Speaker 4: Obviously don't Shop paying a seventy eight decided to open
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  Speaker 4: things up, But it was the eighties, nineties and then
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  Speaker 4: the naughties that China really became into its own, but
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  Speaker 4: I have a lot to say in this topic, so
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  Speaker 4: I don't want it to burn your ears off so much.
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  Speaker 4: But yes, there has been a hollowing out of manufacturing,
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  Speaker 4: particularly ross belt Midwest, and the talent that was there
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  Speaker 4: thirty years ago isn't there right now. It just isn't.
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  Speaker 4: That is to disavantage in America. So the whole bring
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  Speaker 4: manufacturing back, yes, in terms of additive manufacturing, higher value manufacturing, absolutely,
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  Speaker 4: but some of the artisans and skills that used to
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  Speaker 4: be there just aren't there anymore. There is some of
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  Speaker 4: that in Mexico, obviously, there is in China. In terms
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  Speaker 4: of for our own local situation. On a micro level,
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  Speaker 4: we're going to be bringing over some Chinese to help
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  Speaker 4: us with getting set up and established in Mexico. We
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  Speaker 4: need to come out of the blocks. We don't have
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  Speaker 4: the time, our customers don't have the time or the
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  Speaker 4: patients to wait to train talent, which can take many
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  Speaker 4: months to get to where you need to be. Not
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  Speaker 4: everything is automated, you still need, you know, manual artisans.
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  Speaker 4: Like we're doing polishing. There's a lot of what we
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  Speaker 4: do is decorative, so surface processing is very important. So
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  Speaker 4: we will be bringing in some overseas talent to help that,
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  Speaker 4: but the goal is to train and develop local talent.
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  Speaker 4: It was a really interesting question.
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  Speaker 2: Well, and you've brought up another one that I was
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  Speaker 2: thinking that I was just reading about it the other day,
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  Speaker 2: and it's more of a hybrid approach to than near
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  Speaker 2: shoring and the way it was referred to in this
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  Speaker 2: article from two weeks ago on supply chain Brain was
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  Speaker 2: China plus one or China plus strategies where it's a
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  Speaker 2: little bit of both. One issue is the production capacity,
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  Speaker 2: with business owners thinking they can just shift and that's
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  Speaker 2: just not the case. As you pointed out, you can't
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  Speaker 2: just pick up and move and assume that things are
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  Speaker 2: going to function the same way. There's a number of
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  Speaker 2: different things, and the China plus is kind of the
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  Speaker 2: hybrid approach of we're going to start over here, but
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  Speaker 2: we're not going to quite.
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  Speaker 3: Give up China yet. So do you feel like that's
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  Speaker 3: where you are at the moment?
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  Speaker 4: Yeah, absolutely, that is the strategy. You know, you can't
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  Speaker 4: turn off on top until you could turn on the
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  Speaker 4: other top, right, So the China plus one strategy, you know,
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  Speaker 4: we're embracing it. We're realistic to know that. But you know,
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  Speaker 4: a company has been dealing with a factory or a
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  Speaker 4: series of factories for twenty thirty years, there's a whole
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  Speaker 4: ecosystem that's been built there. So your factory guy, mister Wong,
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  Speaker 4: who you're dealing with, you'd be dealing with for twenty years.
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  Speaker 4: He has Tier twos, Tier threes, tier four vendors supporting
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  Speaker 4: him in an ecosystem all around, and it's very difficult
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  Speaker 4: to recreate that. So yeah, we basically are saying to
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  Speaker 4: our customers, Look, Mexico is getting on its feet right now.
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  Speaker 4: Divert twenty thirty percent of your orders to us. Prove out.
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  Speaker 4: Then we hoped while it might have been eighty percent
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  Speaker 4: China twenty percent Mexico, it may turn over and then
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  Speaker 4: it maybe eighty percent Mexico twenty percent China, And that's
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  Speaker 4: the vision that our customers have. And so yeah, so
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  Speaker 4: we're trying to do but we're very aware of China.
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  Speaker 4: Plus one, there's certain entrenchment with factories over there, and
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  Speaker 4: there's a whole ecosystem and that's what we have to
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  Speaker 4: recreate well.
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  Speaker 2: But also just not losing any of that tribal knowledge
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  Speaker 2: that exists within the operations of your company. It would
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  Speaker 2: be terrible to lose all of that knowledge. So the
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  Speaker 2: hybrid approach really enables companies to make that shift to
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  Speaker 2: address the needs of the overall enterprise and the investment
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  Speaker 2: and the supply chain itself, while also maintaining the integrity
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  Speaker 2: of the product or the service that you've been able
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  Speaker 2: to build and that business that is so critical you
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  Speaker 2: can't afford to lose that tribal knowledge. So it's wonderful
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  Speaker 2: that your Chinese employees are willing to participate in this,
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  Speaker 2: especially given that you're essentially just leaving, you know, to
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  Speaker 2: a certain degree, you are moving away from their homeland.
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  Speaker 2: So it's wonderful that they are supporting the company's growth,
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  Speaker 2: that they feel that investment in your company. So, given
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  Speaker 2: that these are some of the trends that we're seeing
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  Speaker 2: now that China plus one a gradual shift, but definitely
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  Speaker 2: a shift, what do you anticipate is going to affect
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  Speaker 2: the supply chain landscape in the next five years when
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  Speaker 2: it comes to nearshoring. There are a number of industries
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  Speaker 2: that are going to be primarily affected by this near
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  Speaker 2: shoring trend. Automotive, aviation, semiconductors, aerospace, high tech, all of
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  Speaker 2: those types of industries that are prime for coming back
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  Speaker 2: to and I say coming back because I'm in the US,
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  Speaker 2: so coming back to the US or moving away from
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  Speaker 2: China to the Americas. So given that shift, I mean,
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  Speaker 2: those are the industries that are going to benefit the most.
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  Speaker 2: But what other industries could there be that are going
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  Speaker 2: to also benefit from these trends?
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  Speaker 4: Sure? Well, well that's top of my mind is probably textiles.
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  Speaker 4: I mean, it's already there, but you still have quite
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  Speaker 4: a massive textile industry in China, Southeast Asia. There's room
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  Speaker 4: for that to grow in Mexico for sure, particularly in
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  Speaker 4: partnership with other Central American countries like Guatemala and so on.
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  Speaker 4: You know, they can get their yarn and row material
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  Speaker 4: from there and then do the cut and sew in Mexico.
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  Speaker 4: So I think textiles there's further room to grow there.
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  Speaker 3: So what advice would you give to other companies who
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  Speaker 3: are considering near shoring to the Americas or reshoring to
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  Speaker 3: the Americas.
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  Speaker 4: When I was in China, we're sitting around a table,
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  Speaker 4: We'll be talking about deals with Chinese companies and people,
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  Speaker 4: and we always mentioned the sixties due diligence due diligence
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  Speaker 4: Jewish religens, it's still appropriate for Mexico. You know, you've
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  Speaker 4: got to do your homework, do your homework on the state,
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  Speaker 4: the city, the region that you're looking to move in,
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  Speaker 4: the people that you want to be getting into business with.
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  Speaker 4: And for us, it started with the people than the place. Really,
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  Speaker 4: if I'm honest. We have a very talented vice president
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  Speaker 4: in San Luis. His name is Manuel, and Manuel as
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  Speaker 4: my first employee down there and kind of opened my
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  Speaker 4: eyes to areas that are not just Monterey or Guadalajara
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  Speaker 4: or Tijuana for example. So fifty odd percent of the
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  Speaker 4: foreign direct investment that goes into Mexico goes into Nuevo Laredo,
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  Speaker 4: which is the state where Monterrey is. But Monterrey, while
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  Speaker 4: it's a great city, great people, great food, to me,
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  Speaker 4: it seems quite saturated with factories going in there, which
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  Speaker 4: is pushing up the price of per square foot, your
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  Speaker 4: labor costs. And also there's a scarcity of water that's there,
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  Speaker 4: which I think even Elon Musk brought up. And so
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  Speaker 4: there's other parts of Mexico that are very very interesting,
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  Speaker 4: particular to people industrials. So we picked the Bachio region.
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  Speaker 4: Bachio means basin, and it basically runs across central Mexico
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  Speaker 4: from kind of Guadalajara east through Mexico City. If you
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  Speaker 4: could imagine the main body of Mexico like a dart board,
• 14:48
  Speaker 4: if you had to throw it an arrow, San Luis
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  Speaker 4: Potozzi would be around the kind of bull's eye. So
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  Speaker 4: we picked that area because it wasn't just saturated, but
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  Speaker 4: a really good pool of talent. There, good universities. It's
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  Speaker 4: intersected by the fifty seven I call it the Hinds
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  Speaker 4: fifty seven Freeway, which basically links all of the major
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  Speaker 4: cities in Mexico. It has a railway there. Kansas Southern
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  Speaker 4: City run through there, so you can actually put your
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  Speaker 4: products onto the train. It could get you to Missouri,
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  Speaker 4: get you to anywhere you wanted in the Midwest. Has
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  Speaker 4: a good airport there as well, linking to certain key
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  Speaker 4: American cities. For us, it was people and the location
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  Speaker 4: were kind of the driving forces for us in terms
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  Speaker 4: of how to select where we wanted to go.
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  Speaker 3: Wonderful.
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  Speaker 2: Well, we are going to talk further in another episode
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  Speaker 2: about your experiences moving your operations from China over to
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  Speaker 2: Mexico and what some of those challenges and obstacles were
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  Speaker 2: and how you overcame them. Because for our listeners, we're
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  Speaker 2: nearly ready to go live with your facility, so I
• 15:56
  Speaker 2: hope they tune in next time for the second half
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  Speaker 2: of our discussion, where we talk a little bit more
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  Speaker 2: in depth about your experience and not just the overarching
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  Speaker 2: topic of your shoring.
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  Speaker 3: So that brings us to the end of this episode.
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  Speaker 2: If any of our listeners out there have a suggestion
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  Speaker 2: for a topic or would like to be a guest
• 16:15
  Speaker 2: on the show, we'd love to hear from you. You
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  Speaker 2: can reach me at podcast at mebok dot com. As always,
• 16:21
  Speaker 2: thanks for listening to Speaking of Supply Chain. If you
• 16:23
  Speaker 2: enjoyed this show, please rate and review us on whatever
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• 16:34
  Speaker 2: half of our conversation.
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  Speaker 3: With Jonathan.
• 16:42
  Speaker 1: Meeboch Consulting is one of the largest and most globally
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  Speaker 1: recognized supply chain consulting, engineering and advisory firms. For nearly
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  Speaker 1: fifty years, we've helped clients achieve supply chain excellence and
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