Rough for US companies to pull geographically production closer


It may take years for US businesses to have the same supplier networks and raw material sources as Asian manufacturing hubs.

US importers are looking to shift supplies from the Asia-Pacific region to Mexico and Latin America. However, experts say that the strategy of moving manufacturing countries close to the consumer market (nearshoring) may cause them even more problems.

Img: Bloomberg

They will have to find suppliers with enough raw materials, production quality, and the proper network like the current ones in China or Southeast Asia. Experts say that re-establishing that capacity and re-engineering the supplier pool according to a "closer" strategy will take years.

Due to the pandemic, the supply chain disruption in the past two years has led many Western companies to seek to shift production closer. The displacement impetus is more potent since congestion has often occurred in ports, empty store shelves, closing factories, and billions-dollars value of goods trapped in overloaded distribution centers. Nearshoring is supposed to make the supply chain more resilient to such shocks by shortening processes, keeping shipments uninterrupted, and reducing costs. White House economists identified that shifting manufacturing operations from local to distant countries have made supply chains complex and fragile, with inflexible centers and few substitutes".

Shifting supply chains that built up over many years is a complex undertaking. Enterprises must consider the availability and transportation of raw materials and components. "When we talk to firms, it's still on their plans," said Ed Barriball at consulting firm McKinsey & Co. "However, the actual shift might be difficult."


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