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  • Writer's pictureSedat Onat

Nearshoring

Definition

Nearshoring refers to moving the business processes (materials and/or services) of the institution to a country/region that is geographically and culturally closer to the point where the institution is located.


Main differences between Nearshoring and Offshoring;

Especially in some regions within the country, the incentives implemented by the state direct institutions to the Nearshoring approach.


In addition, it is an approach also applied in countries with large geographies (China, Russia, USA, India, etc.).


Benefits

  • Benefiting from Incentives: It makes it possible to benefit from the incentives applied in the economic development zones created by the countries.

  • Time Savings: Shorter shipping times and the same or similar time frames are ideal for effective collaboration and quick responses.

  • Quality Control: Geographic proximity allows for more stringent monitoring of the production process.

  • Flexibility: Working with a close supplier makes it easier to adapt to sudden changes in production volume or demand.

  • Lower Warehouse Costs: Faster arrival and departure of products, reducing unnecessary inventory costs.

  • Reduction of Global Risks: Producing in nearby regions can be an assurance against possible interruptions or disruptions of the global supply chain.

  • Cultural and Linguistic Compatibility: Because nearby regions often share cultural and linguistic similarities, business processes are less complex and more effective.

  • Low Transportation Costs: Close-distance transportation reduces energy costs and carbon footprint, creating a sustainable supply chain.

  • Ease of Regulation and Compliance: The same or similar legal frameworks facilitate compliance and regulation processes.


Risks

  • Capacity Limitations: There may not be sufficient production capacity in nearby areas, which may result in demand not being met.

  • Technological Insufficiency: If the supplier does not have sufficient technological infrastructure, it may negatively affect product quality and delivery time.

  • Political and Economic Instability:A political or economic crisis in nearby areas could threaten your supply chain.

  • Transportation Risks:Although a closer location is advantageous, possible losses, delays or damage during transportation should be taken into consideration.

  • Labor Costs:Labor costs in nearby areas may be higher than in more distant areas.

  • Risk of IP (Intellectual Property) Theft: Insufficient legal regulations for the protection of intellectual property may increase the risk of IP theft.

  • Quality Inconsistency: The quality control mechanisms of close suppliers may not meet your expectations.

  • Regulation and Compliance Risks: There may be norms that must be followed, such as different tax laws and environmental regulations, in nearby regions.


Good Practice Examples

  • Nokia: Thanks to its nearshoring strategy, it quickly procured semiconductors from other suppliers, which it could not procure from Philips due to a lightning strike. This fast response time enabled Nokia to maintain its market share. (Ref: The Accident That Ended Ericsson )

  • Volkswagen (VW): German automobile manufacturer VW reduced logistics costs by creating a supply chain in Poland. As a result, VW increased production efficiency and shortened the spare parts supply period.


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