Due to recent global supply chain disruptions and escalating environmental concerns, businesses have had to adapt to stay afloat and maintain operability. While many are increasingly turning to nearshoring as a strategic solution, challenges continue to pose threats to businesses.

As such, it is vital to emphasize building a sustainable long-term nearshoring strategy. The recent accelerated shift toward renewable energy poses an exciting opportunity for businesses. By recognizing an intersection of sustainability and geographic proximity, businesses can unlock an untapped potential to optimize operations.

The rise of nearshoring

The Covid-19 pandemic exposed the vulnerabilities of global supply chains, leading to delays, increased costs, and inefficiencies. Many businesses worldwide have adopted nearshoring, driven by efforts to reduce disruption and costs.

In 2022, a Trade in Transition survey found that more than half of business leaders in APAC planned to diversify their supplier base, while almost a third planned to switch to suppliers within their home market or region.

Nearshoring is the practice of relocating manufacturing and services closer to the company’s primary market. Businesses have benefited from the advantages of reduced transportation costs, improved supply chain resilience, and faster time-to-market. By moving operations closer to home, many could successfully mitigate the risks and challenges posed during black swan events, such as the pandemic.

Energy challenges for nearshoring hubs

Nearshoring hubs require a stable energy supply to maintain continuous, efficient operations and meet delivery deadlines. This energy is required to support advanced machinery and technology essential for high-quality production, prevent costly interruptions from power outages, and safeguard businesses against financial losses. Hence, consistent energy availability is fundamental to the competitiveness of nearshoring hubs in a global market.

Despite their benefits, nearshoring hubs face significant challenges due to the current global energy crisis. Volatile fossil fuel prices and geopolitical tensions have caused operational disruptions, increased costs, and created supply chain vulnerabilities. Frequent power outages and unstable energy supplies lead to production delays and higher expenses as hubs invest in costly backup systems.

These challenges underscore the importance of transitioning to renewable energy sources to stabilize costs and ensure a reliable energy supply. The integration of renewable energy sources into nearshoring hubs is emerging as a critical factor for ensuring their long-term success and sustainability.

Renewable energy as a strategic advantage for nearshoring hubs

Rather than viewing nearshoring and renewable energy as individual concepts, consider them interconnected strategies that can mutually reinforce each other. Integrating renewable energy into nearshoring hubs creates a synergy that enhances operational efficiency, sustainability, and market positioning.

Bayerische Motoren Werke AG’s (BMW) San Luis Potosí vehicle manufacturing plant exemplifies the successful integration of renewable energy into nearshoring hubs. This plant is located in Mexico and strategically positioned close to BMW’s North American market.

In an era where awareness of greenwashing is high, enhancing environmental credentials is extremely important for businesses. Consumers and stakeholders expect businesses to walk the talk by taking genuine and substantial steps toward sustainability.

Through on-site photovoltaic systems and sourcing energy from a nearby solar park, BMW has created an operation that aligns with its sustainability goal of sourcing 100 percent of its electricity from renewable sources.

BMW also plans to double its on-site self-supply capacity at the plant, which suggests a continual commitment to ensuring cleaner operations. The plant is expected to generate enough power to cover 26 percent of its total energy consumption, allowing it to operate at base load solely with its own generations when not actively producing vehicles.

Renewable and resilient

Renewable energy provides a stable and predictable energy supply, less vulnerable to geopolitical risks and price fluctuations associated with fossil fuels. Nearshoring hubs can also diversify energy sources by investing in a mix of renewable energy sources, including solar, wind, hydroelectric power, alongside traditional energy sources.

By using or generating renewable energy, nearshoring hubs can thus reduce reliance on external energy suppliers and volatile fossil fuel markets, leading to more predictable and stable energy costs. As businesses are shielded from price fluctuations and supply disruptions, they can achieve a more secure financial outlook.

Integrating renewable energy into nearshoring hubs can also be a matter of playing to strengths and leveraging existing resources effectively. Renewable energy sources are becoming increasingly cost-competitive compared to fossil fuels. The declining costs of renewable technologies, driven by technological advancements and economies of scale, have made solar and wind power more affordable and accessible. For instance, the cost of solar photovoltaic (PV) modules has dropped by over 80 percent in the past decade, and wind turbine prices have also seen significant reductions.

A fine example of a country that has capitalized on its abundant solar and wind resources is Mexico. According to estimates by the National Renewable Energy Laboratory of the United States (NREL), Mexico has the potential to generate 28,591 GW of renewable energy.

The Villanueva Solar Park is a 754MW solar photovoltaic (PV) power plant and one of the largest solar parks in the Americas, harnessing solar energy primarily through photovoltaic panels to convert sunlight into electricity. Projects like this harness a region’s natural resources while providing a cost-effective energy supply for operations.

Furthermore, governments are becoming increasingly interested in renewable energy and investing more in infrastructure, including energy, transport, and logistics, thereby improving conditions needed for integrating cleaner energy sources into nearshoring.

Existing government subsidies and incentives designed to promote renewable energy adoption can offset initial capital costs, making the transition more economically viable for companies as well.

Nearshoring to go the distance

Nearshoring offers a promising solution to the challenges posed by global supply chain disruptions. However, to fully realize its potential, businesses must integrate renewable energy into their nearshoring strategies. By doing so, they can achieve a sustainable and resilient supply chain, reduce their environmental impact, and ensure long-term success.

Integrating renewable energy is not just a strategic advantage but a necessity for a sustainable future. With Mexico as a prime example of opportunity, firms in the Asia-Pacific region should look to integrate renewable energy as they capitalize on nearshoring opportunities to build a sustainable and competitive manufacturing and distribution landscape.