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A lot has changed in sourcing practices in terms of strategy and mindset, with geopolitics and diversification now permanent parts of the equation along with lower labor costs and available talent pools. The fact remains, though, that trade has been rerouted rather than brought home. What did change after the rethink that COVID started is that tariffs and geopolitics are now driving it.
Beginnings
Before the words “offshoring” and “nearshoring” were coined, moving work abroad was already being practiced, with Mexico’s maquiladora program being the first known example. This system, created by the country’s Border Industrialization Program in 1965, allowed foreign-owned factories near the US border to import parts duty-free and export finished goods. Since this was production close to home, it was nearshoring decades before the word existed. Earlier in the same decade, US electronics and semiconductor companies started moving assembly work to Asia, with Fairchild Semiconductor's operation in Hong Kong setting a precedent. The company registered its local entity there in 1962 and went into full production in a leased space the following year. From there, other manufacturing spread to Taiwan, South Korea and Singapore.
Offshoring
Still, it was the finance industry that first used the term “offshore,” appending it to “banking,” while it came to be applied to manufacturing later in the 1970s and 1980s.
In the 1980s through the 1990s, the term extended to IT, with examples in India. Texas Instruments opened a development center in Bangalore in 1985, while GE set up a back-office operation in the country in 1997. The latter business became Genpact later.
Offshore outsourcing
It was also in the 1980s that “outsourcing,” or specifically “offshore outsourcing,” became a widely available business model, with third parties performing business processes or IT functions for a company in another country.
But even way before this, it was already being practiced in the 18th century. “Early US factories imported inexpensive raw materials, such as those from India processed in Scotland, to cut costs while maintaining quality,” according to Derek Gallimore in an Outsourcing Accelerator article.
Answering services emerged in the 1940s and business process outsourcing (BPO) the following decade. “Companies started outsourcing more complex functions such as payroll, human resources, and customer service,” according to Ali Din in a Premier NX article.
India, meanwhile, built an IT industry built a base for services offshoring. There was Tata Consultancy Services (TCS) that started offering software development or IT maintenance services to foreign companies in the 1970s.
It was also in the 1970s that consumer electronics and manufacturing took a significant shift to Asia to reduce labor costs.
Nearshoring
The Mexican IT firm Softtek is generally credited with coining and trademarking "Near Shore" in 1997. Instead of competing with Indian vendors on price alone, it marketed Mexico's closeness to the US, shared time zones and cultural similarity. And with NAFTA already in 1994, it had already pulled a lot of manufacturing to Mexico, so the conditions for regional sourcing were in place.
The term spread around 2002 or 2003, promoted by Softtek and the Mexican government, with Latin America and Canada becoming US nearshore destinations. In Costa Rica and the Caribbean, call centers grew. In Europe, the same idea took hold as companies in Western Europe used Central and Eastern Europe, especially after EU enlargement in 2004. North Africa served France and Spain in a similar way.
In this period, nearshoring was still mostly a niche alternative or supplement to offshoring.
In the 2010s, wages in China rose and hidden offshoring costs involving quality, coordination, IP risk and long supply chain became more visible. As a result, the related idea of "reshoring" or bringing work back home gained attention.
From then on, more events redefined this business model starting with the US-China trade war from 2018 onward and making reliance on distant suppliers geopolitically risky. And then there were the COVID-19 disruptions between 2020 and 2021 that exposed how fragile long supply chains were and turned nearshoring into a boardroom-level strategy.
After Russia invaded Ukraine in 2022, policymakers also began talking about "friendshoring" or turning to allied countries.
In 2023, Mexico overtook China as the largest source of US imports, a widely cited sign that nearshoring had become a major trend.
From rare and regional to global shocks
Sourcing risks have been documented since the offshoring boom of the 1990s to the 2000s. Issues like hidden costs, quality failures, IP theft and disruptions like the 2011 Japan earthquake already highlighted supply chain fragility. But they were seen as rare, short-lived or regional until the pandemic happened and it hit everywhere at once, exposing how much companies had underweighted these risks and making them impossible to ignore.
So, what changed after the pandemic? There was a marked shift in priorities and the opening up of new vistas. Where before cost efficiency and lean inventories came first, resilience and "just-in-case" inventory took precedence. Risk is now explicitly built into total cost models instead of being left out of sourcing decisions. There is mapping of deeper supply tiers when before supplier visibility usually ended at tier one.
For manufacturing, offshoring didn't shrink overall but spread across more countries and moved partly toward nearshore locations and allies, with resilience built in at a higher cost. Indeed, the pandemic was a turning point for nearshoring. It showed how vulnerable long sea routes and single-country dependence were, and it turned years of discussion into large investments, especially in Mexico, Central and Eastern Europe, Turkey and North Africa. Services grew, too, because the pandemic showed that remote work is normal and distributed work is practical.
In addition, the pandemic introduced or worsened some problems, from shortages of masks and other protective equipment to a semiconductor shortage, container shipping rates rising several times over and sudden swings in demand. Later shocks, including the 2021 Suez Canal blockage, Russia's invasion of Ukraine in 2022 and attacks on Red Sea shipping from 2023, reinforced the lesson and sped up trends that were already underway, especially diversification, nearshoring and "China+1."
References
https://www.fullstack.com/blog/nearshore-vs-offshore-outsourcing-key-differences
https://scm.ncsu.edu/scm-articles/article/a-brief-history-of-outsourcing
https://insights.personiv.com/blog-personiv/outsourcing-vs-offshoring-vs-nearshoring
https://www.outsourceaccelerator.com/articles/history-of-outsourcing/
