To nearshore or not? Considerations for moving into a new market

Nearshoring, the practice of bringing operations closer to a company’s primary market, has gained momentum in recent years as business leaders navigate supply chain disruptions, geopolitical uncertainty, tariff pressures, and evolving customer expectations. According to McKinsey & Company’s 2025 supply chain survey, 33% of respondents affected by tariffs are developing supplier nearshoring or onshoring strategies¹.

For many organizations, these efforts represent a continuation of broader supply chain resilience initiatives that emerged following the disruptions from the COVID-19 pandemic. While cost savings remain an important consideration, companies are increasingly evaluating nearshoring to improve operational flexibility, reduce risk, and create more resilient supply chains.

However, nearshoring is a strategic investment that can affect an organization’s operations, finances, workforce, and growth plans for years to come. Before relocating production or expanding into a new country, leaders should understand both the potential benefits and the challenges involved.

What benefits does nearshoring offer companies?

One of the primary advantages of nearshoring for many organizations is reduced supply chain risk. Bringing manufacturing, distribution, or support operations closer to key markets can shorten supply chains and reduce dependence on distant suppliers. Fewer links in the supply chain can result in improved responsiveness when disruptions occur, as well as ability to pursue new market opportunities.

Nearshoring may also create cost advantages. While labor cost savings alone may not justify relocation, shorter transportation routes and faster lead times can help improve overall operating efficiency. Companies may also gain greater flexibility to respond to shifting customer demand or changing market conditions.

Lowering risk in the supply chain isn’t the only potential benefit of nearshoring. Geographic proximity allows for closer collaboration between a U.S. company and its manufacturing teams. Being in the same or comparable time zones could reduce communication delays, leading to faster decision-making and problem-solving.

For organizations serving customers primarily in North America, countries such as Mexico offer an opportunity to balance labor costs with proximity to end markets. In some cases, the ability to deliver products faster and more reliably can become a competitive advantage.

Yet despite these benefits, nearshoring is not universally beneficial.

When nearshoring isn’t the right move

Customer location remains one of the most important considerations. If a company's customers are concentrated in Southeast Asia or another international market, relocating production closer to North America may create unnecessary costs and complexity. Often, proximity to the customer is a critical component in cost control and product competitiveness. Moreover, moving production geographically further from the customer ironically adds complexity and contravenes many of the benefits that are the primary aim of nearshoring.

Similarly, companies that depend on specialized suppliers or highly customized components may find that nearshoring presents fewer benefits. If critical suppliers remain concentrated in a specific geography, relocating only part of the supply chain could increase costs while creating new operational challenges.

Companies should also evaluate local infrastructure, labor availability, transportation networks, and supplier ecosystems before entering a new market. A region that appears attractive based on labor costs alone may lack the resources necessary to support long-term growth.

In some situations, nearshoring can even create new vulnerabilities. Limited supplier options, workforce shortages, or infrastructure constraints could lead to disruptions that offset the intended benefits of relocating operations.

Nearshoring strategy: financing, talent, and building local connections

Once a company has determined that nearshoring aligns with their long-term business objectives, the next challenge is execution. Moving production and operations into a new country requires significant investment. Costs may include facilities, equipment, technology, workforce development, inventory buildup, and ongoing operational support.

Securing financing for these investments can be challenging. Local lenders may have limited familiarity with the business, while domestic financial institutions may be hesitant to finance international expansion. As a result, some companies are forced to rely heavily on internal capital or equity to fund their growth plans.

Foreign exchange risk is another important consideration. Operating across currencies can expose businesses to exchange rate fluctuations that affect profitability and cash flow. Companies should evaluate whether hedging strategies or treasury management solutions are necessary to help mitigate those risks.

Beyond funding, organizations must also build relationships with local suppliers, service providers, legal advisors, and business partners. These connections are critical to establishing operations efficiently and navigating the regulatory and business environment in a new market. However, establishing those connections can be a barrier because many companies have little or no experience operating in these markets.

Financial institutions with international capabilities can often help facilitate these introductions, connecting businesses with banking partners, suppliers, and other resources that support market entry and long-term growth.

What to expect in the future

Many companies are considering nearshoring today because they see it as a way to reduce risk and build resilience. In the near term, companies are focused on reducing dependence on concentrated supply chains and improving operational flexibility. Over time, however, growth opportunities may once again become a primary driver of investment decisions. Additionally, geographic diversification can be a risk reduction tool for companies. Over time, all countries have economic ebbs and flows, and companies that can successfully shift around the world to take advantage of current growth pockets, or alternatively avoid recessionary environments, are less susceptible to volatile performance than those limited to one or few geographic corridors.

The most successful organizations will likely balance resilience and growth rather than prioritize one at the expense of the other. As market conditions evolve, companies should regularly reassess whether their supply chain and operating footprint continue to support strategic objectives.

Organizations that begin with a clear objective, whether reducing supplier concentration risk, improving service levels, controlling costs, or supporting growth, are often better positioned to determine whether nearshoring is the right investment.

Evaluating, financing, and executing a nearshoring strategy can be complex. Huntington can help organizations navigate those challenges by providing financing solutions, treasury management expertise, foreign exchange guidance, and connections that can help support expansion into new markets. Reach out to our team to learn more about how we can support you.