Can Nearshoring Help Thwart Counterfeiters?

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As manufacturers look for ways to fortify their global supply chains and improve the resiliency of these critical networks, some of them are considering nearshoring as a way to bring production closer to their customers. Used by companies that outsource some aspect of their operations to a third party, nearshoring involves the use of third parties that are geographically closer in proximity to the manufacturers themselves. 

Nearshoring has grown in popularity in recent years thanks to the global pandemic and the supply chain snarls that were created during that period. For at least some industries—automotive, for example—the disruptions have continued this year.

“Thanks to the COVID-19 pandemic, the supply chain has been facing an incredible amount of stress and so far, that stress hasn’t shown any signs of slowing down,” USA Customs Clearance states in What is Nearshoring? “Shipments from overseas are now taking longer and are more expensive than ever before. Fortunately, nearshoring will help resolve many of these problems.”

Addressing a Common Enemy: Counterfeits

Nearshoring may also be able to help electronics manufacturers, distributors and end customers address a common enemy: counterfeit electronics producers and sellers. Steadily rising for the past decade, counterfeiting damages businesses and global economies. According to the U.S. Customs and Border Protection (CBP), the Los Angeles/Long Beach seaport seized $1 billion worth of fake items in less than one year (from January-September 2022). This represented a 38% increase over the previous year.

“CBP commits substantial resources in intercepting and seizing products that infringe intellectual property rights such as trademarks, copyrights and patents. These illicit goods often fund criminal activities and organized crime,” said Carlos C. Martel, director of field operations in Los Angeles, in a consumer alert. “These historic records show that smugglers exploited the increased demand for products via e-commerce and other sources.”

According to the CBP, the majority of the counterfeit goods that were confiscated by the port last year came from China. This begs the question: If U.S. manufacturers were to nearshore their outsourced operations closer to home, would it help cut down on the flow of counterfeit goods that continues to make its way into global supply chains?

Macrofab’s Misha Govshteyn thinks so, and expressed his opinion about this important topic in a recent EE Times article on how “Nearshoring Mitigates Counterfeit Component Risks.” While counterfeit electronics have existed for many years, he says recent disruptions in the supply chain, such as parts shortages, have brought this issue more to the forefront.

“Among the problems this creates for manufacturers is the inferior quality of these components, which can pose serious safety and reliability risks,” Govshteyn writes. Citing Semiconductor Industry Association statistics, he says counterfeiting costs U.S.-based semiconductor companies more than $7.5 billion per year, which translates into nearly 11,000 lost American jobs.

Moving Production Closer to Home

Through nearshoring, manufacturers can move production closer to home, eliminate some supply chain complexity and increase transparency. This would potentially make it easier to track the origins of components and ensure the authenticity of those products.

“Manufacturers must monitor and control the production process and part-sourcing efforts or find industry partners to aid them in their efforts,” Govshteyn writes. “The real-time collaboration that nearshoring enables results in closer coordination, giving manufacturers clearer insight into day-to-day operations.”

When operations are situated closer to home, manufacturers can more readily monitor the quality of the components being made and ensure that they meet the required specifications. 

“While initial costs may be higher in producing components in countries closer to home, that cost can be offset by protecting that investment via the reduced risk of counterfeit parts, as well as the increased quality control and faster delivery times that come with nearshoring,” Govshteyn adds.

Mexico as a Potential Nearshoring Candidate

An organization that provides services to foreign companies that want to manufacture their products in Mexico, IVEMSA acknowledges that relocating production and changing setup models are both complex undertakings. However, it says ongoing trade restrictions between the U.S. and China have prompted numerous manufacturers to consider nearshoring to countries like Mexico.

The organization also says shifts in the manufacturing industry no longer make China as lucrative as it once was. “The industrial labor force is retiring, and fewer employees are taking on vacant manufacturing roles,” IVEMSA adds. “Additionally, labor and transportation costs have spiked, delayed timelines have deterred production and ongoing trade conflicts between the U.S. and China have created room for opportunity for nearshoring instead.”