Sourcing from China is on the decline, and the supply chain is challenged
by Jerry Haar
The term “nearshoring” – transferring all or part of a company’s operations to a nearby country –was rarely mentioned prior to the global pandemic. During the past 30 months, however, it has gained prominence as a buzzword and generated much discussion and decision-making among companies and governments.
As nearshoring grows in prominence and the “Factory of the World” – China – loses some of its luster, can the Americas in general, and Miami specifically, benefit from this shift in outsourcing? For Latin America, the Caribbean, and Canada, the answer is “yes” – and Miami, too, but only indirectly via its vibrant services sector.
According to Gartner, a prominent research and consulting firm, one-third of U.S. firms in China are thinking about leaving. A number have already left for Vietnam where lower labor costs and higher levels of productivity than China serve as a magnet for relocation. Recent manufacturing examples are Apple’s AirPods Pro 2, Microsoft’s Xbox, and various lines of Hasbro toys.
Where Miami will benefit from nearshoring is by supporting Hemisphere businesses that are searching for alternatives to China and Southeast Asia for the outsourcing of services. Just as Mumbai and Manila serve as back offices for U.S. business process outsourcing, Miami can support nearshored companies based in Memphis and Milwaukee as well as Monterrey and Medellín. Miami’s forte is as an ecosystem of capital, know-how, talent, entrepreneurism, and business infrastructure that can be mobilized to enable actual and potential competitors of Asian manufacturers and service providers to achieve success.
For many of the reasons listed above, companies such as Nike, Adidas, Puma, and Under Armour are moving production from Asia to Central America to respond to shorter demand times and to benefit from the CAFTA-DR accord benefits – such as a 32 percent break by using fabric and materials sourced within the region. For apparel, electronic assembly, medical devices, and IT services, companies that manufacture in the region will be coming to Miami to purchase goods and components for their manufacturing and business operations and to source services (legal, accounting, insurance, information technology), education and training, leisure activities, and even additional housing.
With the migration of offshored operations from Asia to the Americas, Miami is well-positioned to gain from nearshoring. As confirmation, one need only look North, where Canadian sportswear manufacturer Gildan Activewear (with operations in Honduras) and Calgary-based Analytika, an information services company, are benefiting from nearshored business.
As Miami possesses all the requirements of nearshoring – time zone similarity, talent availability, similar work culture, multilingual capabilities, and a well-developed infrastructure – we are bound to benefit in the services sector from the nearshoring trend. As the challenge for Asia is to stem the tide of the out migration of Western manufacturing firms, the challenge for Miami (and for our Hemisphere neighbors) is to strengthen and expand the attractiveness of its business environment regardless of who and where their customers are located.
Jerry Haar, PhD, is a professor and executive director for the Americas at Florida International University’s College of Business. He is also a Global Fellow of the Woodrow Wilson International Center for Scholars in Washington, D.C., a fellow of the Council on Competitiveness, and a board member of the World Trade Center Miami.
