Nearshoring vs. Reshoring vs. Backshoring: What Are They?

The world we live in focuses on global commerce and interconnectivity. When you look around you, the items you use every day come from nearly everywhere in the world, all at once. Semiconductors from South Korea, circuit boards from China, clothing from Vietnam and Bangladesh, plastics from Taiwan, steel from America, rubber from Thailand and Indonesia, the list goes on and on and on.

There are also many pressures against this. Some of them come from a bad place, like trade wars and economic sanctions or political posturing and bigotry. Others come from a good place, like the environmental concerns of international shipping and the humanitarian concerns over the exploitation of vulnerable people.

When global commerce started to grow, the process of moving your business operations to a country more supportive of your business - or with laxer tax laws or more incentives for operating within their borders - was called offshoring. Now, pressures are changing, and new terms are coming to the fore to describe the move in the other direction.

So, what are these processes? What is nearshoring? What is reshoring? What is backshoring? What other kinds of shores can be explored? Let's dig in and talk about it.

What is Nearshoring?

The first term to discuss is nearshoring. Nearshoring is a type of offshoring where your business relocates some or all of your production to a nearby country but not your own country. It's contextual; a country in Europe can nearshore to other European countries, but here in America, Europe wouldn't be nearshoring.

For us here in America, nearshoring basically means production located in Canada or Mexico. The idea is that you want to offshore your production - possibly because of social, political, or financial pressures associated with operating in the United States, or possibly because you simply can't set up the right kind of facilities domestically - but you don't want to go all the way and outsource to China, South East Asia, or another country oceans away.

Nearshoring has some benefits. It's often cheaper to hire workers in other countries, especially in places where the cost of living is much lower. There may be fewer regulations to get in the way of your operations. There may also just be facilities already operational to do what you need to do, whereas if you wanted them onshore, you'd need to front the millions of dollars necessary to build them.

As with all sorts of offshoring, there are a lot of different considerations, as well as potential drawbacks, to nearshoring. Rather than dig deep into them here, why not read our full post on ethical nearshoring here? For now, we'll talk about other kinds of -shoring.

What is Reshoring?

Reshoring is a reversion of previous offshoring.

Take a company like ours, for example. We take great pains to ensure that the apparel we sell is as local as possible; the cotton is grown in the USA, it's ginned in the USA, it's turned into fabric in the USA, it's turned into shirts in the USA, and even the printing we provide for you is handled in the USA. It's entirely domestic production.

Say we decided to throw ethics to the wind and decided to offshore our shirts to Bangladesh. Maybe we get some short-term financial benefits from it, but eventually, social pressures or a loss of quality get to us, and our morals start to tug at our heartstrings. Taking those Bangladeshi operations and bringing them back to the USA is reshoring.

To be clear, none of that has happened or will happen. We're incredibly happy with our domestic production and pride ourselves on knowing the full ethical, environmental, and social impacts of our apparel, "from dirt to shirt," as it were. Feel free to ask us about it if you want the details; we have receipts! Literally!

Reshoring can happen for a variety of reasons. A common one you might see in the near future is tariffs making it more expensive to operate offshore. Dissatisfaction with offshore production, delayed communications, poor service, and other issues can also drive reshoring.

The benefit of reshoring is, of course, a return to domestic production. This might result in higher quality items, and it might be a good selling point.

At the same time, reshoring isn't always feasible or even possible. For example, if your business sells steel water bottles, it's impossible to reshore it to the USA because there are no domestic facilities that produce them. Or, rather, you could if you were willing to invest in a steel foundry yourself. Many businesses decide to reshore for ethical reasons, forget about the logistical hurdles, and fail because of it. Planned right, reshoring can go well and be a benefit to everyone, but there are difficulties and challenges to overcome.

What is Backshoring?

Backshoring is perhaps the least common - and least commonly referenced - version of -shoring we're discussing today.

In simple terms, backshoring is reshoring with one key difference. Instead of just returning your production to your home country, you bring it back entirely in-house. It would be like if we bought a farm, set up a cotton gin, built a textile mill, hired tailors to make apparel, and did the printing all on our own. Instead of outsourcing those functions to specialists, we create divisions to do them.

Backshoring is difficult. Most companies aren't set up to do everything they would need to do throughout their whole production chain. Some operations need to be done in-house, either because they're wildly inefficient to outsource or because there are no convenient or affordable ways to outsource them. Others almost can't be done in-house, at least without having tens or millions of dollars to invest in facilities, infrastructure, and people.

Another reason why backshoring isn't talked about as often is that it's usually interchangeable with reshoring. In fact, many people called reshoring backshoring before the difference was meaningful for these kinds of discussions. As such, even the term "backshoring" is so rarely used that you're more likely to find references to the construction technique than to the method of business operations.

What is Friendshoring?

One of the more interesting variations of the offshoring and reshoring paradigm is the concept of friendshoring.

Friendshoring means moving your operations, not just back to your country of origin, but to your sphere of allies. Most often, this is in reference to geopolitical allies, but it may also be more limited to countries that tend to share your social and ethical values, even if they aren't particularly aligned with the overall values of the country.

The idea of friendshoring is gaining popularity as a way to ensure some form of stability in turbulent times. While we might be facing tariffs on imported goods from "enemy" nations and even historic allies, there are other countries that are unlikely to be the target of these kinds of sanctions. You can view your operations in these countries as more reliable and stable. There can even be an element of civil stability as well, as these allied countries tend to be less likely to erupt into civil war or be invaded by another country.

Friendshoring is a sort of middle ground between full offshoring and reshoring. It doesn't necessarily go as far as nearshoring (and, in fact, given the current rhetoric surrounding tariffs on Mexico and Canada, nearshoring might not even qualify in the near future), but it does bring your operations closer than full offshoring.

One critical note is that friendshoring often does not have the same sort of considerations or benefits as reshoring or offshoring. Allied countries may be cheaper than domestic production, but they also might not; in fact, a lot of allied countries even maintain higher standards above and beyond domestic regulations, so it can be even more expensive to operate in those countries.

Frequently, the goal of friendshoring is to work with expert and specialist service and product providers in countries that share your overall values and ethics. You still have to face challenges like overseas shipping, but shipping from, say, somewhere in Europe is usually better than shipping from China, to use a simple example.

What is Onshoring?

The term onshoring has a few different meanings, depending on where you're starting.

If you're spinning up a business for the first time, onshoring simply means starting and keeping your operations local and domestic.

If you're currently operating domestically and you want to grow through outsourcing, onshoring means outsourcing within the bounds of your country. Building domestic partnerships and contracts with suppliers who are in the same country while outsourcing those operations to other companies constitutes onshore outsourcing.

If you're currently operating offshore, onshoring and reshoring are the same thing. It's simply returning your operations to your country.

Like backshoring, onshoring isn't as commonly used as a term. The first of these three definitions is just operating a business, and the third is reshoring. Only the second can be considered onshoring, and most of the time, people refer to it more as outsourcing domestically. It's not a fault of the process, just the nonspecific nature of the term.

Which Option is Best for Your Business?

So, which of these kinds of operations should you pick?

It really comes down to what your goals are and what concerns you have as a business.

From an ethical, environmental, and social perspective, reshoring is almost always the best option. While the USA might not be the best country in the world for the treatment of labor and the exploitation of the land, it's still better than a lot of other countries. More importantly, if you're selling products in the USA, nothing beats domestic shipping for minimal environmental impact. The closer you are to home, as well, the less likely you are to experience disruptions in the case of significant world events, like the pandemic showed us all.

From a financial standpoint, things are a lot trickier. When looking at nothing but your own expenses, full offshore operations tend to be the cheapest. When factoring in the associated secondary costs, something like nearshoring is likely to make more financial sense. Though, of course, with the impending turmoil and tariffs, everything is up in the air at the moment.

Friendshoring is a good option to explore if you want to focus on social and ethical alignment in your operations and don't mind the added costs it brings to the table. Unfortunately, it's rarely the best choice along any other axis. That said, it can be a good way to get a foothold in an allied foreign market, where you could expand your sales later.

Another significant consideration is simply the practical limits of what can be done. To use the steel water bottles example again, there's no real feasible way to reshore/onshore making those bottles because there are no facilities domestically willing to make them. This is true in many different markets. It's why it's big news when, for example, the USA invests in building a huge semiconductor manufacturing facility or discovers a wealth of rare earth metals that formerly would have had to be processed in another country, and so on.

Balancing all of these factors is a very individualized process for each business. You have to know what you need, where it can be provided around the world, and what your goals and priorities are in terms of ethics, finances, and general opportunity.

What we can say for sure is that focusing our efforts on domestic products, local and hyper-local production and connections, and operations as close to home as we can has been incredibly rewarding. We put our ethics front and center - it's why we chose the name Ethix - and we're proud of what we've accomplished. The world has a long way to go, but we want to be part of that change.

So, whether you're in the market for some ethical products, follow us for our deep dives into the world of business operations, or just want to know a bit more about how all of these things work, we're glad to have you.