For a long time, businesses were primarily driven by profit, moving their production to distant, low-cost countries. However, as global dynamics evolve, companies are starting to rethink their supply chains. Rather than relying on the traditional model of offshoring, rising trade risks, supply chain disruptions, and sustainability pressures are compelling businesses to relocate their production and procurement. Many companies are exploring reshoring and nearshoring as strategic alternatives, moving operations closer to home or to more stable, nearby regions. These decisions not only help businesses mitigate risks, but also provide them with opportunities to enhance the resilience of their supply chains, and to increase their sustainability performance. Therefore, reshoring and nearshoring should not be merely seen as operational shifts, but as strategic decisions that are essential for safeguarding their supply chains in an increasingly unpredictable global environment.

This article is written by Tim Verspeek ([email protected]) and Jaouad Bantal ([email protected]). Tim and Jaouad are part of RSM Netherlands Business Consulting Services with a specific focus on Sustainability and Strategy. 

Rethinking the supply chain structure

Shifting trade landscape

Global supply chains are inherently complex, comprising various stakeholders and processes that make them particularly susceptible to disruptions. Even minor developments within the international trade landscape can lead to significant repercussions for supply chains. Geopolitical tensions and trade wars introduce risks such as trade sanctions, export controls, and import tariffs, which necessitate compliance with evolving regulations. For instance, the ongoing Russia-Ukraine conflict has substantially restricted imports and exports with Russia. At the same time, the US-China trade war has increased costs and complicated trade dynamics for certain goods, including dual-use items.

Sustainable supply chain

Businesses are increasingly expected to enhance their sustainability practices, a trend that carries significant implications for global supply chains. Governments are implementing stricter regulations to promote sustainable initiatives, complicating compliance for companies operating in multiple jurisdictions. For example, the EU’s Green Deal imposes businesses to reduce its emissions and minimise the use of resources, while the Corporate Sustainability Due Diligence Directive (CSDDD) requires companies to conduct due diligence on their human rights and environmental impacts across their entire value chain. 

Besides the regulatory challenges associated with increased sustainability awareness, the physical risks of climate change impact businesses’ supply chains across industries as well. The increasing frequency and severity of extreme weather events such as hurricanes and floods pose significant risks to supply chain stability. The shift in climate patterns can disrupt agricultural production, alter resource availability, and affect transportation routes, ultimately leading to increased costs and supply chain interruptions. 

Due to the impact of climate change, consumers are more aware of the sustainability issues, increasing their demand for businesses to be transparent about their sourcing practices, production methods, and environmental impact. This makes that consumers are increasingly favouring companies that demonstrate a genuine commitment to sustainability, driving them to provide detailed information about their supply chains. While these sustainability initiatives can be perceived as an additional expense, the long-term costs of maintaining unsustainable practices can be far greater. Inefficient resource use, waste generation, and regulatory fines can significantly reduce profit margins. Furthermore, companies that fail to adapt to sustainable practices risk losing market share to more agile competitors who embrace environmentally friendly strategies.

Reshoring and Nearshoring: a solution?

To navigate the uncertainties of the shifting trade landscape, businesses could realign their supply chain strategies by focusing on reshoring or nearshoring. These strategies can mitigate risks while enhancing supply chain resilience. By moving operations closer to home, companies can significantly reduce their exposure to volatile international markets, creating a more stable operating environment. Shorter, regionally focused supply chains offer greater agility, faster response times, and fewer risks associated with global disruptions, such as pandemics or transportation delays. This makes them an attractive solution for businesses seeking not only stability but also a competitive edge in an increasingly unpredictable global trade environment.

Beyond addressing trade disruptions, reshoring and nearshoring could also offer significant benefits related to sustainability. One of the most notable advantages is the inherent reduction in carbon footprints, achieved by minimising the distances that goods need to travel. By relocating production facilities closer to end markets, businesses can lower greenhouse gas emissions, resulting in a more sustainable and efficient operation. Additionally, shorter supply chains simplify logistics, reducing complexity and helping businesses comply more easily with regulations like the CSDDD. With fewer intermediaries, companies gain greater visibility into their sourcing practices and labour conditions, enabling more effective risk assessment.

Moreover, producing goods closer to consumer markets allows businesses to better align with the growing demand for sustainable products. With operations nearby, companies can reduce waste during transportation, streamline logistics, and minimise energy consumption, further supporting sustainability goals. In tandem with these advantages, reshoring and nearshoring also contribute to the development of more circular supply chains. When production is relocated domestically or regionally, the reuse, recycling, or remanufacturing of materials becomes easier and more efficient. This reduces environmental impact and diminishes dependence on increasingly scarce and costly raw materials, offering a long-term strategic advantage in a resource-constrained world.

However, while reshoring and nearshoring offer clear benefits in terms of mitigating supply chain disruptions and enhancing sustainability, businesses should also weigh several important considerations before making this strategic shift. First, the costs associated with moving operations closer to home can be substantial. Companies should assess whether the financial investment required for relocating production facilities and adapting logistics infrastructure is feasible in the long term. Tax implications also play a crucial role, as companies need to consider the local tax regulations, incentives, and potential duties that could affect profitability.

Beyond the financial aspects, businesses should evaluate whether the necessary materials and resources can be reliably procured from nearshore locations. Are the relevant raw materials available locally, or will companies still need to rely on international suppliers for certain components? This question extends to human capital as well. The availability of a skilled workforce is critical to maintaining operational efficiency, but companies need to examine whether local labour markets can support their needs. Additionally, the cost of human capital should be considered. While nearshoring may reduce certain operational expenses, labour costs in some regions may be significantly higher than those in traditional offshoring destinations.

It's important to note that many companies originally offshored their supply chains to optimise for cost efficiency, particularly by taking advantage of lower labour costs in regions like Asia. As businesses rethink their supply chain strategies, they should assess whether nearshoring can achieve the same level of cost efficiency or whether the advantages in flexibility, sustainability, and resilience outweigh the potential increase in operational costs, ensuring that they find the most efficient way forward.

To address some of the challenges associated with reshoring and nearshoring, technological solutions could be helpful, improving their overall efficiency. By leveraging advanced technologies, companies can enhance their operational processes and better manage the complexities of relocating production closer to home or key markets.

Technologies like Artificial Intelligence (AI) and Digital Supply Chain Twins enable companies to optimise their reshored or nearshored supply chains through better demand forecasting, real-time supplier monitoring, and efficient inventory management. Robotics Process Automation (RPA) automates critical processes, reducing manual tasks such as order processing, while predictive analytics improve supplier risk assessment and streamline logistics operations. These tools enhance operational agility, allowing companies to react to market fluctuations, while reducing dependencies on distant suppliers. Additionally, AI-driven sustainability solutions ensure compliance with environmental standards by monitoring carbon emissions and improving eco-friendly practices, aligning reshoring with regulatory frameworks.

Forward-thinking

As companies deal with the complexities of shifting trade dynamics and increasing sustainability demands, reshoring and nearshoring have emerged as critical strategies. These approaches not only enhance supply chain resilience but also align with the growing emphasis on sustainable practices. However, businesses must recognize the associated challenges, including potential cost increases and resource availability.

To navigate these changes effectively, companies should evaluate the potential advantages and disadvantages of relocating operations to ensure that strategic decisions align with their overall objectives. By proactively addressing these factors, businesses can position themselves for success in a rapidly evolving global landscape.

RSM is a thought leader in the field of Sustainability and Strategy consulting. We offer frequent insights through training and sharing of thought leadership based on a detailed knowledge of industry developments and practical applications in working with our customers. If you want to know more, please contact one of our consultants.