Shortening supply chains and moving operations closer home are objectives on the minds of a majority of executives in 2024, with a whopping 81 percent reporting that nearshoring and onshoring are integral to their future plans.
That figure has grown by 18 percent over the past two years, according to newly released research from Bain & Company. The group’s biennial survey of CEOs and chief operating officers showed a rise in companies planning—or already engaged in—shaking up their sourcing mix to include nearby or domestic markets.
We’ve heard about these trends before; nearshoring, reshoring and onshoring became inescapable pandemic-era buzzwords, but as of yet, they haven’t led to the crumbling of the sourcing world order. However, there are a confluence of factors now driving executives to divorce themselves from the status quo of the past three decades, according to Bain partner Hernan Saenz.
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The global head of the firm’s performance improvement practice said a combination of economics, questions about supply chain resilience, new regulations and incentives and uncertainty about consumer behavior are driving decision-makers to confront the “magnitude” of the shifting sourcing landscape.
In 2024, 64 percent of executives report that they’re actively making investments in shaking up sourcing, Bain’s data showed. Nearly half (46 percent) of the 166 execs surveyed said they were looking into “split-shoring,” the firm’s terminology for developing offshore, nearshore and onshore sourcing, while 18 percent said they were gung-ho about developing a nearshore supply chain. Just 36 percent of C-Suite leaders said they were investing in offshoring moving forward.
Even prior to the pandemic, economics were already driving companies to explore markets outside of China for sourcing, Saenz said. “We created massive demand on a big, but fixed, labor supply, and that created a wage increase,” he told Sourcing Journal. Companies began looking to other markets in Asia and Latin America to cut costs, beginning the “China-plus-one” trend that took shape throughout the 2010s.
Covid poured fuel on that fire—and it also created a sense of fear about future supply chain resilience that persists to this day, he said. “People realized that recovering with a very long supply chain is super hard,” he said. “They started saying, ‘In a world full or turbulence, I’m going to need to have a shorter supply chain, and have supply chains closer to my end markets.’”
Throughout two administrations, the U.S.-China enmity has deepened, leading to both new regulations—like the Section 301 tariffs on China-made goods—and incentives, like President Joe Biden’s CHIPS and Science Act and Inflation Reduction Act (IRA), that have pushed companies to examine their future-looking frameworks for sourcing. Bain’s research showed that U.S. businesses (which made up 39 percent of surveyed companies) were incentivized to reshore by the IRA, which offers subsidies and tax credits to boost domestic manufacturing for critical sectors like semiconductors and clean energy.
The U.S. trade relationship with China isn’t the only geopolitical factor influencing companies to explore new production markets. The firm’s study showed that the appetite for reshoring has also been underscored by international trends toward deglobalization, characterized by more localized production, protectionism and border controls.
One-quarter of company leaders saying they’re looking to reduce dependence on China due to concerns about the decoupling of economic blocs across the world. Nearly 70 percent of international executives said they’re making moves to shift operations out of China as a result.
Meanwhile, consumers started to take notice, perhaps for the first time in decades, of where the products they were buying were produced. “Now, super interestingly, you even started seeing a little bit of economic nationalism, not only political nationalism,” Saenz said.
With President-elect Donald Trump promising to raise tariffs on products made in China by 60 percent to 100 percent during his first 100 days in office, the Bain partner said these trends will likely continue with a vengeance. The rhetoric that’s permeated the airwaves throughout the past six months already has companies scrambling to rearrange their sourcing matrices before the new Commander in Chief is sworn in.
“If the tariffs that have been planned go through, it’s going it’s going to lead to even more movement toward U.S. production, toward friend-shoring schemes, and movement away from countries that are not considered friends into countries that are considered friends,” he added. Mexico has been a notable beneficiary of that movement already, unseating China as the U.S.’ biggest trading partner for the first time in two decades last year.
But with Trump promising tariffs not just for China, but for all trade partners, the sourcing landscape stands to become even more complicated. “Whether you agree with tariffs or not, we all know the two reasons why governments do it—one to incent local production, two to generate government revenue,” Saenz said.
The U.S. is not in a place to take on large volumes of production domestically, though—and even growing sourcing markets like Mexico have years to go before they’re fully mature and able to verticalize, he added. That’s evidenced by the fact that just 2 percent of the CEOs and COOs surveyed said they’d achieved their nearshoring plans, despite a resounding desire to do so.
In Saenz’ estimation, it comes down to the fact that shifting supply chains is tough, time-consuming work. Even with the pressures companies are facing, he said he was surprised by the decisiveness of the data showing more “shoring turbulence” ahead.
“I was expecting people to say, ‘I tried nearshoring and realized how hard it was.’ I was not expecting an increase,” he explained. “It’s easy to say you’re going to move production, but it’s very hard to actually do it.”
“My expectation was that the number would not be as big, but I was wrong; 81 percent of companies are saying, ‘I’m going to bring production closer to the market.’”
