Nearshoring is “the transfer of business or IT processes to companies in a nearby country, often sharing a border with your own country”, where both parties benefit from such a move. A recent survey of US manufacturers by MIT Forum For Supply Chain Innovation reveals that almost 1 in 2 manufacturers in the United States are seriously considering bringing manufacturing back (or closer) to the US. This has been due to a variety of factors, chief amongst which are the need to be able to respond quickly to the needs of the end user. Add to that the price of oil, which seems now a certainty to trade in a narrow band, giving a measure of consistency in production planning, labor costs which have risen significantly in both China and India (to the extent that production is moving to Vietnam and Call centers to Philippines) and faster time-to-market. While the ground realities in India may not suggest this, here are a list of events that might help explain why nearshoring is accelerating:
- On December 6, 2012, Apple’s CEO, Tim Cook announced a plan to invest $100M in manufacturing a line of Mac Computers in the U.S.
- The next day, Foxconn announced plans to open a production facility in North America, so they can label some of their products as “Made in America”.
- Labor wages in the US have barely moved, despite near-zero interest rates for several years, indicating a stable workforce close to home, which is well equipped to zig and zag as the need maybe
- Economic unrest in China might accelerate this process, leaving in its wake a string of ghost towns.
India has its share of challenges too. We, had in an earlier series of articles on the effect of Cloud Computing underlined the challenges that exist for IT companies in India. Wages have been on an upward spiral in India too and to some extent this has been managed by the fall of the Rupee vis-a-vis the US Dollar and through attrition (remember TCS layoffs that may or may not have happened?) In the long run, India will need to learn to use its vast IT resources to do projects within India itself, such as helping build Smart Cities etc.
Not all is bad news though – Aging populations in Europe and Japan will open a lot of opportunities in the Healthcare/ Hospice industry, similar to the job boom created by the oil rich economies of the Middle East in the 70’s and 80’s. Already Medical tourism has developed significantly in India and will only grow more. The most pressing need is for stable infrastructure (Electricity, Roads and Water). India has a world class workforce to make this happen if the government has the will to formulate rules that will privatize this effort and be only an arbiter.