Guide: How to Nearshore Ethically and Responsibly

If you've spent any time in commerce or otherwise engaged in business, you've grappled with the pros and cons of offshoring operations. In apparel and garment production, you typically have a choice: you can work with local producers and domestic manufacturers, paying higher fees and costs for products created near to you, or you can save money by opting for producers in China, Vietnam, Indonesia, and elsewhere.

Offshoring saves you money, yes, but it has costs that go far beyond the financial bottom line. When you're working with a producer in Vietnam, you have very little influence or feedback over their operations. You can't know how their employees are treated, you have no validation for their working conditions, and you may even end up with substandard products. On top of that, there's the immense environmental cost associated with global shipping.

Increasingly, ethical vendors and businesses want to operate in ways that are less harmful to the environment, less costly to human life and dignity, and more supportive of local economies. But, it can be hard to compete with the cost savings on the open market from competitors who have no such qualms. Sure, some people will pay a premium for ethical products, but many won't.

How do you navigate this situation? One increasingly popular solution is called nearshoring.

What is Nearshoring?

Nearshoring is a sort of hybrid between domestic production and offshoring.

In broad terms, it's defined as relocating production and operations to countries closer to your own without bringing them fully domestic. With that definition, the list of countries you can nearshore to is limited by where your business is based. A business in Germany could "nearshore" to most of the rest of the EU; a business located in Brazil could nearshore to other countries in South America.

Here in the United States, we can only really nearshore to two countries: Mexico and Canada. Both Mexico and Canada have benefitted from the United States' "trade war" with China, seeing Chinese imports drop year over year while Mexican and Canadian imports rose.

Technically speaking, nearshoring is still offshoring. But there's a huge difference between ordering a shipment of shirts from Vietnam and needing to have them shipped via cargo carrier or ordering them from Mexico and having them driven up on a truck. It's still not as good as a fully local producer, but it's better than crossing an ocean.

Nearshoring is extremely popular in some industries, tech and development in particular, and somewhat less popular in industries where the infrastructure necessary to produce physical products might not exist. If we want to manufacture t-shirts in Mexico, we need to find a facility that can turn cotton into shirts, which may not be as readily available as a roster of freelance coders or a manufacturing facility churning out cars.

Nearshoring can present a number of challenges alongside the benefits. Some of them are ethical concerns, which we'll dig into deeper in a moment. Others are political, and still others are practical.

Practical challenges are similar to those of offshoring. They include:

• Cultural differences.
• Differences in legal frameworks.
• Communications and language barriers.
• Technology and availability roadblocks.
• Distance and the inability to directly visit and review without jumping through hoops.

That said, many of these are smaller when you nearshore. For example, nearshoring production to Canada doesn't present much of a language barrier outside of some areas of Quebec, time zones are the same, they share much of our modern technology and availability, and it's pretty easy to cross the border for a facility inspection. Mexico is a bit more challenging but still a lot easier than the equivalent tasks from China or Vietnam.

What Are the Ethical Challenges of Nearshoring?

Nearshoring can present many ethical challenges, similar to offshoring, albeit with a different perspective and different mechanisms available to address them.

Sustainability in production and logistics.

As with all forms of manufacturing and production, sustainability, green operation, carbon emissions, environmental protection, and that entire sphere of concern is important.

Obviously, nearshoring is broadly going to be better than offshoring in this category. However, there are some areas that may be better, and some that may be worse. For example, while child labor is common in Vietnam, it's also extremely prevalent, often in even worse ways, in Mexico. Both countries, at the top levels, promise to address the problem, but it's one that requires immense focus and a cultural shift that is slow to occur.

Of course, the USA is currently perhaps not the bastion we hope it to be, with an increasingly flexible set of laws in certain states allowing and promoting child labor.

The same goes for pretty much every concern in ESG. Environmental impacts from nearshoring are much better than those of offshoring in general due to the elimination of international shipping. Mexico also has a thriving and traditional culture of growing cotton, primarily in Chihuahua, whereas other countries may need to clearcut forests or manipulate waterways to grow it.

The regulatory environment.

Another potential ethical concern is governance and regulations that control manufacturing. Every country, and in fact every region, will have different environments. Some of them are proactive and protective of people and culture; others are reliant on bribes and don't enforce their power. This can really come down to the specific kinds of production and the people you work with.

In broad strokes, nearshore countries are often better about governance than offshore countries. Even then, Canada is largely better about it than Mexico, though generalizing entire countries into a single sentence doesn't do them justice.

The biggest ethical concern surrounding governance is actually focused on cultural norms and, in many ways, the regulatory environment we take for granted. Even simple things we expect from domestic producers, like adherence to certain laws or clean water standards and the like, simply may not exist in other countries. If you don't think to ask specifically about them when finding suppliers and producers, it might never come up; things you take for granted aren't necessarily universal.

Treatment of workers.

We've already mentioned child labor, but there are many issues with worker rights and labor standards around the world. Exploitation of workers tends to be less prevalent the closer a nation is to more developed nations, but it can still vary immensely from place to place.

If your goal is ethical production, there's a lot you can do, but at the end of the day, you have to pick partners who share your values and work on the same perspectives. That isn't always possible when you're working with producers in another nation.

On a more granular level, you may also need to consider equality in hiring practices, equal treatment, and a good workplace environment for the people producing your items. It's essentially the same list of ethical concerns you have with production anywhere, but more abstracted and harder to monitor when you aren't local to oversee those operations.

Geopolitical ramifications.

One somewhat unique ethical challenge to American nearshoring is the increasingly nationalist sentiment throughout the country. Many consumers are aware that products made in China have their issues and may choose to avoid them; similarly, there's a growing anti-Mexico sentiment among certain segments of the population. These same sentiments don't necessarily apply to places like Vietnam and Indonesia in the same way since they haven't been used as talking points.

What this means is that nearshoring assigns a ramification based on the country of operation and how clearly it is labeled on your items. Not all products label everywhere they come from, but with apparel, a simple "made in Mexico" identifier is common. If this turns away a segment of your customer base, that's a challenge you face and will need to overcome.

An Uncertain Future for Nearshoring

As we step into another cycle of our four-year political pendulum, nearshoring comes into stark question. The incoming administration has picked a significant fight with Mexico in particular, but to a lesser degree with Canada as well. This is on top of the usual trade war with China and general distress at the thought of any sort of imports.

The international perspective is endlessly challenging. We live in a truly global society where it can be hard to exist in a way that doesn't incorporate the fruits of labor and technology produced in dozens of countries. Even a business with entirely USA-based staff, USA-based suppliers, USA-based production, and more, might hire accountants nearshored in Mexico, customer service staff nearshored from Canada, using software developed in India to run their operations.

Meanwhile, the aforementioned administration is heavily promoting tariffs on imports from virtually everywhere, which suddenly makes it much more expensive and difficult to nearshore or offshore. Whether or not those tariffs will apply and to what remains to be seen. What it does mean, however, is that there's a frightening potential for repercussions and further hindrance of nearshored operations in countries impacted by these barriers to trade.

We don't have a solution here. It's impossible to predict how the next four years are going to shake out; the best we can do is insulate and adapt as best we can.

How Can Your Company Nearshore Ethically and Responsibly?

Nearshoring responsibly, disregarding potential geopolitical shakeups, means doing what you can to uphold the ethics and justice that you promote throughout your supply chain.

You have some potential tools and options available to you to help out:

• Work with partners that adhere to certifications and standards of ethics and governance. For example, ISO 26000 is a social responsibility standard. ISO 37000 focuses on industry governance. Companies adhering to these are likely to be ahead of those that don't.
• Develop a Code of Conduct and Supplier Agreement. Developing standards you want your partners to adhere to, and requiring adherence to maintain ongoing contracts, can be a critical tool in your arsenal to exert pressure on external companies you work with.
• Collaborate with NGOs and industry groups. There are a number of international coalitions focusing on workers' rights and ethical treatment. By finding and working with those organizations, you can find suppliers who are much more likely to be on your side of the issues.

At the end of the day, it all comes down to doing the best you can with the tools you have available. Often, that means deciding where your boundaries are and determining if you have more local options you can use instead.

Is Nearshoring the Appropriate Choice for You?

There's no right answer.

For some companies, the capabilities of offshored facilities are simply too good, for too cheap, to ignore; there's no real way to compete while spending even the amount necessary to nearshore, let alone onshore.

For many companies, nearshoring has a lot of potential, and it's often unexplored because you might not think of partners closer to home when you're initially seeking suppliers and producers. It takes research, business trips, and a lot of correspondence to get it right, but it can form a powerful partnership, so long as politics don't get in the way.

For some of us, domestic onshore production is the way to go. That's why the bulk of what we have in our store is produced as ethically as possible with as local as possible a set of producers. It's an ongoing challenge to make sure everything we offer is produced in a way that aligns with our values, but that's a key part of why we chose this business in the first place; no one else was really doing it the way we wanted it done.

Sometimes, that's what it comes down to. You may need to be the change you want to see in the world, and that means leveraging all of the tools at your disposal to either find the suppliers that work for you or hammer suppliers into shape. If you can pull it off, you can help to make the world a better place. If that's not the role for you, that's your decision to make.