KPMG: Sourcing, Supply Chain Operations to Continue to Migrate to Americas in Coming Years
Meghan Hall
6 min read
New data from KPMG shows the Americas are hot for companies looking to strengthen their supply chains—for reasons from cost reduction, to improved resiliency against ongoing geopolitical tensions.
KPMG uses the term “strategic shoring” to describe global supply chains shifting to various countries in North and South America in an effort to better serve the demands of the U.S. market. While this is often referred to as nearshoring, KPMG executives said that term has become synonymous with moving supply chain operations to Mexico from China or another Asian country, when, in reality, the trend affects multiple countries in the Americas.
Already, 59 percent of industry-agnostic supply chains are based in the Americas, but KPMG’s data shows that supply chain executives project that, within the next few years, 69 percent of those supply chains will be based in the Americas. Three-quarters of the surveyed executives said these changes are slated to occur within the next two years.
However, just because the Americas continue to become a hotspot across various industries, that doesn’t mean that every country stands to benefit from a manufacturing or logistics standpoint.
While today, the U.S. and Canada have the largest market share of supply chain operations in the Americas—with 39 percent and 62 percent indicating that they rely on those two countries, respectively—those figures are expected to slip within three years. By 2027, Canada is expected to handle supply chain operations for just 30 percent of companies, and the U.S. is slated to do so for 44 percent of companies.
In turn, a few countries will see a bump to their supply chain game. While today, 27 percent of surveyed companies report a supply chain reliance on Mexico, that will increase by 9 percentage points to 36 percent in the next three years. Meanwhile, smaller countries, like Colombia and Chile, are expected to see smaller increases—from 22 percent, to 23 percent and from 20 percent to 21 percent, respectively.
If all goes according to projections, the U.S. will still have the largest share of the supply chain operations market, followed by, in order, Mexico, Canada and Brazil. Though Brazil, per the data, will become the No. 4 go-to country for Americas supply chain operations, it is still expected to see a slight decrease in market share; currently, 29 percent of surveyed executives said their company has some sort of supply chain activity in Brazil, but 27 percent said they expect that to be the case in three years.
Tapestry, for instance, has tapped into Brazil for its footwear business. But Vincent Golebiowski, the company’s global head of supply chain, said that, despite its success in Brazil, the company is always evaluating new opportunities for sourcing and supply chain.
“We always try to understand if our current footprint is the right one, but it can change year on year, depending on our suppliers. I thought our footprint would be more static, but in fact, it is evolving all the time,” Golebiowski said in a statement.
Among companies moving their supply chain to the Americas—or expanding their current presence on the two continents—three in 10 cite greater agility and faster time to market as the most important reasons for the moves. One-quarter cite better access to talent or skills, and the same proportion mentioned a reduction in geopolitical risk.
KPMG’s experts posit that cost of labor may also be playing a role in the shift toward Latin America—Mexico, in particular. According to their research, “In 2001, U.S. manufacturing workers were paid 36.4 times more than their peers in China. That dropped to 5.5 by 2022, which is more in line with the wage difference between the U.S. and Latin America. And, as China’s wage gap with the U.S. has narrowed, Mexico’s has stayed fairly consistent over the same period, at 7.2 times lower than the U.S. in 2022.”
Despite some companies’ shifts toward the Americas, China and other Asian countries still play an important role in sourcing and supply chain for many. KPMG’s report notes that China is far from obsolete, with some companies choosing the “China plus one” model—that is to say, splitting production between China and another country closer to the United States, depending on demand and strategy.
When it comes to more macro-level themes, cost still takes the cake when it comes to the most important outcome for a company’s supply chain strategy—and that could be why China continues to be such a major player in many industries’ supply chains.
Among responding executives, some said cost, tax incentives and compliance are less important today than they were two years ago, while agility, speed and sustainability are slightly more important today than they were two years ago.
The report states that change could be due to a shift toward sustaining businesses’ competitive advantage for the long term, rather than focusing on short-term outcomes.
Megan Schoenberger, senior economist at KPMG, said that, as companies continue to face added levels of disruption, a more resilient supply chain will become increasingly critical.
“People are paying more attention to storm seasons and cyber attacks because they affect supply chain operations. So, when it comes to strategic shoring, being able to do that in the most streamlined way possible can really help the macro-economy,” Schoenberger said in a statement.
Even though companies’ views on sourcing and supply chain have continued to evolve, some companies have had a difficult transition to strategic sourcing. KPMG’s data shows four in ten leaders that decided against nearshoring did so because of how complex the change would be, while 34 percent of respondents said they were satisfied with their current sourcing costs. That same proportion of leaders said they already had better access to talent in their current sourcing matrix.
Roberto Durán Fernández, research professor at Tecnológico de Monterrey, said geopolitical disruption may be so strong a force that it could cause companies that have already decided against nearshoring or strategic sourcing to think twice.
Indeed, 66 percent of respondents said geopolitical uncertainty has caused them to re-think their assumptions about the supply chain, and six in ten leaders noted that a tough global trade landscape has caused them to have a renewed interest in regionalized sourcing.
“Many companies have started to see the issues with offshore models that create long intercontinental supply chains,” Durán Fernández said in a statement. “And they are figuring out that shorter supply chains are a way to build resilience against geopolitical [and] environmental…shocks.”
