FreightWaves features Market Voices – a forum for those with unique knowledge of numerous transportation/logistics/supply chain sectors, as well as other critical expertise.
For decades the United States has been sending its manufacturing jobs to China, fomenting the rise of the Communist nation which has put the U.S. and the West in their current geo-political position. And in the last decade there’s been a lot of attention paid to America’s high-end positions going abroad as well. Take, for example, accounting, coding and engineering jobs to India.
Whether the economy is good or bad, this move can make sense for companies. A good economy can present a scarcity of talent in advanced countries which bids up the cost for great employees to unsustainable levels. A bad economy can make offshoring manufacturing or operations a necessity as a cost-cutting measure. Yes, Asia has been the focus of this push to offshore. But are U.S. companies missing out on opportunities in their own backyard?
The idea of nearshoring certainly isn’t new to American companies. In manufacturing the idea began to gain popularity when maquiladoras began popping up in Mexico in the 1960s. By the early 1990s there were around 2,000 of these factories employing over 500,000 Mexican workers. With the passage of NAFTA in 1994, these numbers exploded. But despite the tax breaks and the lack of tariffs, the maquiladoras still could not compete with the cheap labor and government-incentivized trade from China. After the passage of NAFTA, over 1,400 maquiladoras opened in Mexico, but by the year 2000, over 500 of them had closed due to offshoring to China. Currently, there are around 3,000 maquiladoras in Mexico that employee over 1 million Mexicans. Most of them are located near the border for easy access to the American markets and most are owned by American, European and Japanese companies.
But what about nearshoring for services instead of for production of hard goods? Could a nearshoring bonanza similar to the maquiladora phenomenon be a solution to the talent crunch for businesses and also help the host nations as well? In a FreightWaves article earlier this year, J.P. Hampstead interviewed Lean Staffing Solutions CEO Robert Cadena. Lean Staffing Solutions runs back office operations for U.S. freight brokerages from Colombia.
The business started in 2015 and now includes some of the largest companies in the business such as Nolan Transportation Group and Arrive Logistics. “It started as a cost-savings opportunity,” Cadena told Hampstead. “But when you meet the talent – bilingual college graduates – the talent is really great. These guys are intelligent and eager to learn.”
Companies like Lean Staffing Solutions have tapped into a resource whose expansion could be in its infancy. Blended with expertise in the freight business, the company has matched its strengths with an opportunity. Countries such as Colombia, Costa Rica, Mexico, Panama and Peru, among others, have developed economies and strong labor pools with people who are desperate for good paying jobs. Covering agricultural transport for FreightWaves, I would be remiss in not mentioning that several large agricultural firms have run their back-office operations out of Costa Rica for years with great success. Crossing the southern border for talent is nothing new for them.
In an economic slowdown, companies like Lean Staffing Solutions could offer a lifeline to companies that live on small margins. Cadena’s company can save up to 40 percent of the cost of a back-office employee. On the other hand, if the economy continues to soar and labor stays at a premium, nearshoring some functions can serve as a release valve for some of the labor pressure.
Countries near the U.S. tend to share somewhat of a common culture, an understanding of the English language, and work on the same daily schedule as the United States. As trade controversies with countries all over the world continue to roil under the surface, it is up to the U.S. to cultivate relationships with its neighbors and nearshoring is one way to do that.