Why Eastern Europe is the new choice for “nearshoring”

Eastern Europe was once indelibly associated with the former Soviet Union’s influence. While relics of the region’s Cold War past linger to this day, all these stand in stark contrast with the boom experienced by Eastern European countries as companies take advantage of their industrial real estate for “nearshoring”.

Forbes defines “nearshoring” as the opposite of offshoring, where companies move part of their operations or services away to other countries. With nearshoring, businesses transfer these functions to countries that are geographically closer to their own, hence the term.

This phenomenon grew from businesses’ need to shorten their supply lines and minimise the risk of supply chain disruptions. In Europe, this is a clear reaction to growing costs and an increasingly hostile political environment in China, the traditional, go-to offshoring destination. This prompted companies to shift their operations to countries that are closer to home, preferably those sharing the same borders and time zone.

Nearshoring benefits businesses in several ways, namely:

• Proximity
  Nearshoring involves working with partner companies in the region, and the relatively short distance from the business’s core location means minimal communication and collaboration barriers stemming from time zone differences.
  
• Cost-Effectiveness
  In a nearshoring set-up, material and communications move across short distances, drastically reducing operational costs.
  
• Reduced Travel Costs
  Outsourcing business operations and services to another country may require representatives of client companies to travel to their partners in nearshore locations. This is far more convenient than taking a trip halfway across the globe for the same purpose.
  
• Faster Time-To-Market
  Nearshoring significantly cuts down the movement of goods and materials, resulting in shorter project timelines.
  
• Flexibility and scalability
  The shorter supply lines from nearshoring give businesses easier access and better control over their operations, allowing them to quickly introduce changes and scale up as needed. 

Why Eastern Europe?

For many Western and Central European companies, Eastern Europe is an ideal alternative to more distant manufacturing powerhouses like China. Favourable exchange rates, for one, translate to cheaper labour and material costs. Additionally, most Eastern European countries have invested in infrastructure, such as extensive rail and road networks and industrial parks, making the region advantageous for manufacturing businesses.

Most importantly, though, Eastern European countries lie in close proximity to potential Central and Western European client businesses. Short, contiguous land routes make for efficient logistics and supply chains that quickly deliver products and services to their intended markets. These lines are also immune to risks of political shocks that companies outsourcing their business processes to more distant locations are exposed to. 

What this means for the global market

The growth of Eastern European economies from nearshoring has far-reaching benefits. Mainly, this stabilises supply lines in continental Europe and other nearby regions. Shorter supply chains simply carry fewer risks than globe-spanning logistics that are often subject to geopolitical dynamics, and maybe unexpected events like another wayward ship blocking the Suez Canal.