The global supply chain has been hit with many disruptions in the past few years, from the COVID-19 crisis to numerous ongoing geopolitical tensions. Domestic issues, such as skyrocketing labor costs, shifting trade regulations, and inflationary pressures, also threaten to destabilize the operations of many U.S. companies.
Even as pandemic restrictions eased in 2023, supply chain woes persisted for many American manufacturers, driven by material shortages, recruitment challenges, and growing competition. Thankfully, there is a way for businesses to future-proof their supply chains amid all this uncertainty: nearshoring.
This comparative guide will discuss the advantages and disadvantages of Colombia vs. other nearshoring locations. We’ll also briefly explain why nearshoring has emerged as a practical solution for companies hoping to strengthen their supply chains.
State of the U.S. Supply Chain Crisis
In 2023, many U.S. companies responded to the global supply chain crisis by reshoring manufacturing operations at a historic rate, bringing 350,000 additional jobs back home. This decision led to the highest number of reshored jobs in over a decade.
North American manufacturers saw this move as a way to mitigate supply chain risks by lowering transportation and logistics costs due to the shorter distances between factories and their store shelves. However, reshoring brings up brand-new problems: significantly higher labor costs and nationwide talent shortages.
After staying steady at 6.21% since the 1960s, salary growth in the U.S. skyrocketed to an all-time high of 15.28% in 2021. By 2023, wages have increased further, rising by 5.74%.
At the same time, companies are struggling to fill open positions as more employees switch jobs faster. In fact, 30.5 million Americans quit their jobs in 2023, following the heights of the “Great Resignation” the previous year where over 50 million left the workforce.
Nearshoring: The Inflation-Friendly Solution to Supply Chain Woes
The good news is that nearshoring has emerged as a more practical alternative to reshoring. Amid rising inflation and talent shortages, U.S. manufacturers can tap into a larger, more cost-effective workforce by nearshore outsourcing to Colombia and other Latin American countries like Costa Rica, Mexico, or Brazil.
A recent study found that over 90% of companies are eyeing nearshoring to safeguard their supply chain. This outsourcing solution combines the benefits of reshoring for shortening delivery times and increasing efficiency with the significant cost advantages of offshoring.
Why Nearshoring to Colombia Remains Your Best Bet
Going into 2024, industry experts foresee improvements in the global supply chain but warn executives not to lower their guards too much. The international trade environment is continually changing, and enhancing flexibility and resilience is vital to success in these uncertain times.
As such, business leaders must carefully choose their nearshore location, thoroughly assessing their destination’s economic, political, and market conditions.
Among the different Latin American countries, Colombia stands out as an ideal nearshoring hub for various reasons. Here’s what you should know:
- Colombia is among the top LatAm nations in global competitiveness, ranking 3rd in the region in the 2023 IMD World Competitiveness Index.
- The country boasts one of the fastest-growing economies, with its GDP rising to 7.5% in 2022, signaling a positive upward trend for 2023 and beyond.
- Foreign direct investments have increased in Colombia, with multinational companies investing $7.2 billion in the previous years.
- The Colombian government is investing in infrastructure and education to further elevate the country’s status as a premier nearshore destination.
Colombia vs. Other Nearshoring Locations: Pros and Cons of Each Destination
Before you rush to make a decision, having all the facts at your fingertips is critical. Let’s look at the different nearshoring destinations in Latin America one by one and see how each compares to Colombia.
Colombia vs. Mexico
For many U.S. companies, Mexico is often the first country they have in mind when they hear “nearshoring.” In fact, a recent Reuters report revealed that the Mexican government expects their local nearshoring market to grow to 3.5% this year, adding up to 1.2 percentage points.
The U.S. Census Bureau also estimates a 6.3% year-over-year increase in Mexican imports and a 6.7% rise in exports. As such, Mexico has become America’s top trade partner, surpassing China.
Advantages and Disadvantages of Nearshoring to Mexico
The main reason why many manufacturers nearshore to Mexico is because of the LatAm country’s proximity to the United States. Being located near the U.S. border allows for significantly shorter transportation times and more efficient logistics.
On the other hand, Colombia’s significant advantage over Mexico is its lower cost of living. Rental costs in Mexico are up to 79.9% higher than in Colombia, while groceries are 61.2% higher. As such, companies nearshoring to Mexico may have to pay more for labor costs overall.Government support for nearshoring is also more robust in Colombia than in Mexico. The 2022 Offshore BPO Confidence Index ranked Mexico low in the BPO ecosystem because President Andrés Manuel López Obrador eliminated the country’s investment promotion agency, stifling the BPO industry’s growth.
Colombia vs. Brazil
Competing with Mexico and Colombia as a premier nearshoring location for manufacturing is Brazil, the fifth-largest and most populous country worldwide.
Mexico has been attracting substantial foreign investments in 2023. However, in the previous year, Brazil surpassed Mexico significantly, earning 41% of all direct foreign investments in the Latin American region, compared to Mexico’s 17%.
Businesses Advised To Proceed With Caution
Although Brazil shows much promise as a nearshoring destination, companies should also proceed cautiously when partnering with a BPO in Brazil. Unlike Colombia and Mexico, Brazil’s outsourcing industry is relatively new and may not be as reliable as other destinations.
Colombia vs. Costa Rica
Another top nearshoring destination in Latin America is Costa Rica. Regarding technology and IT jobs, Costa Rica is considered the go-to outsourcing location for many businesses because of its robust education system.
Housing many of the most prestigious universities in South America, Costa Rica produces over 7,000 STEM workers and 3,500 engineering graduates each year. Multinational companies tap into this highly educated workforce to ensure project quality while keeping costs low.
Costa Rica is also one of the most politically stable nations in the region, known for its peaceful transitions of power and solid democratic systems.
What’s the Catch?
Here’s the main disadvantage of choosing Costa Rica as your BPO destination: Costa Rica competes with other nations based on quality but flounders on quantity. Being much smaller than its LatAm neighbors, Costa Rica has a population of only 5,228,302.
Meanwhile, Colombia has a much larger population of 52,205,698, allowing U.S. manufacturers and other multinational companies to take advantage of a more massive workforce, preventing talent shortages.
Colombia vs. Argentina
Argentina is another country eyed as a critical nearshore destination for safeguarding supply chains. Thanks to its strategic location in the Southern core of Latin America, the country has access to ports in both the Atlantic and Pacific oceans, making freight transportation by sea feasible.
The Argentinian government also encourages foreign investment by implementing favorable policies and incentives for multinational companies establishing operations there.
However, businesses can achieve higher cost savings by nearshoring to Colombia. The average cost of living in Argentina is 11% higher than Colombia’s, making the latter a more attractive prospect for companies concerned with mitigating risks through cost reduction.
Trust SuperStaff To Provide World-Class Colombia Nearshoring Solutions
Understanding the advantages of Colombia vs. other destinations is only the first step in your nearshoring journey. Your next move should be finding a nearshore provider to meet your business needs.
At SuperStaff, we are committed to helping businesses protect their supply chains and improve their agility and resilience. With our nearshore outsourcing solutions, you can quickly scale your operations while allowing enough flexibility to pivot amid changing international trade conditions.
Get in touch with our Colombian team to learn more about what we can do for you!
