Latin America as a nearshoring platform to the American market. The case of Colombia.
Jose Francisco Mafla is a Colombian trade and corporate attorney admitted to practice in Colombia and the State of New York. He leads the international trade and corporate practices at the Colombian leading law firm Brigard & Urrutia. In a recent interview, he explained how nearshoring is helping US companies to lower their costs and have a more resilient and reliable supply chain by nearshoring services and manufacturing operations. Nearshoring involves moving industrial activities, usually located in China, closer to end clients. It all started as a response to trade tensions, supply chain shocks (e.g. Covid-19 pandemic), and regulatory compliance issues.
Overview of how it works in Colombia
An example can be: Raw materials are brought from China or other Asian countries, manufactured and finalized in a Colombian free trade zone (therefore not triggering local customs taxes) by highly skilled professionals and then shipped to the US with no custom duties thanks to the free trade agreement between both countries.
Benefits of Nearshoring
Ultimately nearshoring reduces logistic and transport costs. It mitigates supply chain risks and regulatory compliance issues by providing a more resilient production chain in a friendlier and closer business environment. Events like the COVID-19 pandemic was a clear eye opening of the struggles that companies face by not having diverse production sources.
Nearshoring for Services
Nearshoring applies not only to manufacturing but also services like call centers and programming. Latin American countries offer advantages like lower wages, time zone alignment, available skilled English speaking talent and U.S.-like standards of regulatory compliance.
Steps for Companies Interested in Nearshoring
Find a local advisor.
Select the right location based on factors like skilled labor, language skills, and tax/customs benefits.
Develop a detailed business plan outlining objectives and location specifics.
Consider real estate transactions and workforce availability in the chosen location.
Plan the project and look at objectives.
Consider real estate transactions and settling in a free trade zone.
Factors to consider
Low cost highly skilled labor.
Incremental language skills development.
Real estate costs and tax/customs benefits.
High opportunity to settle in free trade zones.
Colombia has a free trade agreement with the United States of America, including foreign investment protection rules.