Integrated logistics and digitisation: The technology industry’s nearshoring challenges in Latin America
Companies are increasingly deciding to move their supply chains to countries close to their final markets, considering factors such as the trade war between the United States and China and the rise in transportation costs, which makes it less profitable to have their production processes in the Asia-Pacific region. In turn, the post-pandemic change in consumer habits saw demand surge for electronic consumer goods, which has become a major challenge for this sector. In this scenario, Latin America has a unique opportunity for economic development through ‘nearshoring’, where supply chain integration and process digitisation become operational pillars.
During the 80s and mid-90s, the large-scale economy model led transnational corporations to relocate production chains (Offshoring), with many of them moving their plants to Asia. This process was mainly driven by low-cost labour and guarantees of access to populous markets such as India and China, among others, thus cutting operating costs and maximising profits.
However, the strong economic development that this model generated in Asian markets made it increasingly less profitable for companies to keep their productive activities offshored. This, according to the Economic Commission for Latin America and the Caribbean (ECLAC), was due to factors such as the growth of the Asia-Pacific economy; increase in wages and the consequent rise in the purchasing power of underdeveloped countries; automation of production processes; increase in transportation costs; price of oil, and the trade war between the United States and China, as well as changes in consumer habits and the IT revolution.
In this scenario, many companies decided to lower their level of operational dependence on the East, either by adding new manufacturing centres in different parts of the world or by moving the assembly processes to locations closer to the destination markets – a practice known as nearshoring.
The nearshoring model has gained significant momentum in the last 5 years, but the recent Covid-19 health crisis accelerated this transition, leading many companies to bring their production lines closer to regions such as Latin America, to better deal with high transportation costs, while also minimising the impact that possible supply chain disruptions may have on local markets.
This change in model is facilitating foreign investment in Latin American economies, with Mexico, Brazil, Argentina, Chile, Costa Rica and Colombia concentrating most of this investment in the region. Latin America’s strategic geographic location close to North America, high potential for energy production, great variety of natural resources and an increasingly specialised workforce will lead to the region benefitting significantly from the advantages of nearshoring, both in economic development and the ability to meet growing domestic demand.
Changes in demand and purchase habits
In the first 6 months of 2021, the change in consumer habits for electronic products has generated a significant increase in demand for these goods throughout Latin America. This can be largely explained by the e-commerce and omnichannel retail boom. In this sense, nearshoring allows companies in the region to react in a more agile way to growing demand, and respond to the challenges posed at Latin America’s main ports by the increased volume of imports.
The rise in demand for household appliances has benefited all producing countries in the region, particularly Mexico – the main market for manufacturing consumer technology products in Latin America – where the industry ranges from the design and manufacture of components, to sub-assembly, to the manufacture of final products in sectors such as telephony, computers and household appliances.
Since 2019, Mexico has positioned itself as the largest commercial partner of the United States, with foreign commerce exceeding USD 614 billion. It is the first nearshoring destination for North American computer, home appliance and consumer electronics transnational companies. Its proximity to the United States allows for reduced product delivery times to consumers and, in addition, it simplifies the customisation of these products for our region.
With a global outlook that favours nearshoring in Latin America, there is still room for improvement since production in the region is currently limited to final assembly, and with simplified supply chains. As such, investing in technology and workforce specialisation is fundamental.
When it comes to nearshoring in Latin America, the immediate challenges are to improve supply chain reliability, as visibility and control capacity are essential, while also moving towards distribution centre automation and stimulating expertise and digital infrastructure development in order to add value to supply chains.
Towards integrated logistics
In the medium term, nearshoring will be a significant growth pole for local economies in Latin America, improving supply access, lowering the cost of electronic products and driving workforce specialisation.
At the same time, this model also presents new challenges for the region. Suppliers are further away from assembly points, making integrated logistics essential to have operational visibility as well as the ability to adapt to any contingency. Keeping the flow of goods moving and reducing storage times to a minimum are also issues to consider.
Having integrated logistics implies efficiently managing relationships with all the actors involved in the supply chain: transportation, storage, inventory control and traceability. In this sense, Maersk offers integral solutions for the technology and electronics industry. It understands the challenges and needs of each sector of the industry, delivering tailored solutions that provide visibility, consistency and constant optimisation in product movement, with immediate information and documentation management throughout the entire chain.
An example of this is Maersk's Supply Chain Management (SCM) solutions, a technology platform that combines data and stakeholder and shipping management to tailor services according to the technology industry’s needs.
The platform allows for inventory optimisation, purchase and payment automation with suppliers, real-time documentation management and cargo flow adjustments by projecting changes in demand. All of this is done through electronic data interchange (EDI) that streamlines and automates processes.
A team of more than 5,000 people in 158 strategic locations helps to manage all the supply chain actors such as suppliers, intermediaries and relocated production lines. All this with the ability to identify difficulties and plan solutions that monetise logistics.
As the region’s leading logistics operator, Maersk has more than 300,000 square metres of warehouse and storage infrastructure throughout Latin America, together with an extensive network of services and solutions for maritime, air and land transport. This serves to simplify and provide flexibility to the technology and electronics industry supply chains, being able to adapt to the challenges presented by nearshoring.
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