Nearshoring and Sustainability Can Boost Your ROI

Nearshoring continues to gain traction with electronics manufacturers, fueled by sustainability challenges, geopolitical disruptions, climate change impacts and new US sourcing requirements from federal legislation. In alignment with ESG (environmental, social, and governance) goals, nearshoring empowers manufacturers, providing them with greater control over their supply chain while also embedding environmental sustainability into their operations.

This is a timely issue, with projections that global electronic waste generation will exceed 74 metric tons by 2030, a 35 percent increase in just a decade. Nearshoring enables manufacturers to support their sustainability goals by minimizing their use of long-distance transportation, reducing their carbon footprint and enhancing their overall ESG strategy.

Operational Optimization

Maximizing returns requires electronics manufacturers to take a proactive approach, beginning with a comprehensive risk assessment of the entire supply chain. Detecting vulnerabilities allows for targeted risk mitigation and unveils efficiency and innovation opportunities. Nearshoring enhances this proactive stance by providing increased visibility and control. By situating manufacturing facilities closer to home markets, companies have a clearer line of sight into each stage of production, from sourcing raw materials to delivering finished products.

This proximity facilitates tighter supervision, allowing for swift identification and resolution of potential issues, resulting in improved operational efficiency. Shorter supply chains translate to fewer bottlenecks and more efficient operations, which also reduces the likelihood of disruption. That proximity aligns with the proactive stance required for sustainable supply chain management, as it allows electronics manufacturers to address environmental, social and economic risks more effectively while supporting innovation and efficiency.

With fewer dependencies on international logistics, electronics manufacturers can optimize inventory management, reduce lead times and improve their overall responsiveness to market demands. This agile approach boosts customer satisfaction and fosters resilience against disruptions, such as those that may follow Taiwan's recent earthquake.

In the context of the CHIPS Act, which encourages the establishment of domestic semiconductor manufacturing facilities, nearshoring gains even greater relevance. In the near future, the Act's incentives to localize semiconductor production will enable electronics manufacturers to source these critical components closer to home, reducing reliance on overseas suppliers and mitigating vulnerabilities associated with geopolitical uncertainties. This strategic shift enhances resilience and strengthens national security by safeguarding critical technological infrastructure.

Nearshoring holds immense promise for sustainability initiatives. By shortening the distance between production sites and consumer markets, manufacturers can dramatically reduce the environmental impact associated with long-distance shipping, as reduction in transportation-related emissions helps to minimize carbon footprints. Additionally, the localization of production enables the adoption of more eco-friendly transportation methods, such as rail or electric vehicles, further diminishing the ecological strain of logistics operations.

Sustainable Operations Pay Off

Electronics companies that diversify their electronics suppliers, sourcing locales and manufacturing sites strengthen their defenses against potential disruptions. This approach also fortifies their negotiation power and heightens their agility in response to shifts in demand. With multiple manufacturing facilities in different locations, companies can spread their operational risks and enhance resilience against disruptions such as natural disasters, geopolitical tensions or trade disputes. This diversification safeguards operations and offers flexibility to adapt to changing market dynamics.

Supply chain resilience positively impacts a company’s performance and value. An analysis of approximately 1,800 US companies from 1995 to 2020 revealed that resilient companies outperformed their peers during crises. In stable quarters, the average total shareholder return (TSR) gap between the electronics industry’s 75th and 25th percentile performers was 16 percentage points. However, this gap nearly doubled during crises to 30 percentage points, showing that the ability to perform well during crises, bolstered by resilience, significantly impacts shareholder return.

Sustainability Can Ignite Growth

When integrated into broader business goals, sustainable supply chain solutions unlock new markets, drive product innovation and create new revenue streams. The cost savings driven by improving company performance can be reinvested in further optimizing sustainability across operations, including new packaging solutions that minimize waste, utilize recyclable materials and optimize packaging dimensions to maximize space utilization during transportation. 

Implementing ESG initiatives can significantly enhance employee productivity. Businesses that prioritize ESG principles often witness increased employee engagement and motivation, leading to higher retention rates and reduced absenteeism. This translates to lower costs associated with training and onboarding. Also, investors increasingly favor companies that prioritize ESG initiatives. Investing in renewable energy and sustainable technologies empowers long-term success.

Nearshoring expands market reach by aligning businesses more closely with local preferences and market dynamics. Sustainable innovation sets products and services apart in the market, stimulating demand and contributing to ongoing profitability. Whether through eco-friendly product development or embracing circular economy principles, businesses gain a strategic advantage.

To ensure the long-term success and sustainability of the electronics manufacturing industry, prioritizing ESG initiatives is imperative. By adhering to ESG criteria, the industry can generate lasting value for both internal and external stakeholders, while also ensuring that its operations remain sustainable. Through nearshoring, proactive management of sustainable supply chains, operational optimization, and the integration of sustainability principles, companies can realize cost savings, spur innovation, and open up new pathways for growth.