Ally-Shoring: The Next Level of Outsourcing

Last Updated on July 5, 2023

Nowadays, businesses are constantly looking for ways to stay competitive and maximize their efficiency. An example of such a strategy is ally-shoring, which has gained a great deal of traction in recent years. By combining the advantages of nearshoring and offshoring, this innovative business model creates a powerful business model. This article explains what ally-shoring is, its benefits and challenges, and why it has become an increasingly popular choice for companies worldwide.

Understanding Ally-Shoring

Ally-shoring, also known as "strategic nearshoring," is a business practice that involves partnering with companies in nearby countries to outsource certain tasks or processes. It combines the advantages of offshoring, such as cost savings, with the benefits of nearshoring, such as proximity, cultural alignment, and time zone compatibility.

A pun on the term "nearshoring", Ally-shoring refers to the process by which the United States and its closest neighbors, Mexico and Canada, rethink critical supply chains and source essential materials, goods, and services in order to benefit their most trusted democratic partners.

The US-Mexico Foundation believes Ally-shoring between the United States and Mexico will strengthen and deepen joint manufacturing, R&D, governance ties, trade and security which will make both nations more competitive.

On the home front, ally-shoring would bring good jobs, new economic opportunities and optimism to many of our own citizens, who even before the pandemic were feeling ignored and left behind by globalization and demographic and social change.

‘Ally-shoring’ will help US rebuild economy and global leadership

The Benefits of Ally-Shoring: Building An Economic Relationship With Our North American Neighbors

Ally-shoring offers several compelling benefits that make it an attractive option for businesses:

• Cost Savings: By partnering with companies in neighboring countries, businesses can reduce costs associated with labor, infrastructure, and operational expenses. This cost advantage is particularly significant when compared to onshore outsourcing.
• Proximity and Time Zone Compatibility: Ally-shoring allows for closer collaboration between teams due to geographical proximity. This proximity leads to easier communication, faster response times, and increased agility. Moreover, being in the same or similar time zones enables real-time collaboration, reducing delays and enhancing productivity.
• Cultural Alignment: Cultural compatibility is often an underestimated aspect of successful outsourcing. Ally-shoring enables businesses to work with teams that share similar cultural norms, values, and work ethics. This alignment fosters better understanding, smoother collaboration, and improved overall efficiency.
• Talent Availability: Partnering with companies in nearby countries expands the talent pool available to businesses. This allows for access to a diverse range of skilled professionals who possess the necessary expertise and qualifications. The wider talent availability enhances innovation, problem-solving, and creativity within the outsourcing partnership.

The US-Mexico Foundation reports the US and Mexico have common interests in strengthening  relationships on the southern US border and not just with economic development: 

A robust ally-shoring program with Mexico can deliver a number of benefits consistent with mutual economic, national security, and foreign policy goals: ... Enhance institutions, reduce corruption, and strengthen rule of law in Mexico to promote greater FDI and US-Mexico economic integration.

Strengthen USMCA Supply Chains & Help Decouple from China

The COVID-19 pandemic revealed weaknesses in critical U.S. supply chains - mostly because of China overreliance. Consequently, one of the primary goals of Ally-shoring is to strengthen supply chains between the US & Mexico; the US is prepared to offer incentives to companies willing to run their supply chains through Mexico and discover opportunities for co-production & sourcing in that country. This strengthening of supply chains will have several advantages outside of better inter-country commerce, according to Barrons:

This strategy achieves multiple U.S. foreign policy objectives including accelerating pandemic recovery, re-forging alliances, as well as checking China’s malevolent intentions. Ally-shoring, by providing an option for countries who would rather work with a U.S. and allies-led trade and economic development regime, also affords an attractive alternative to China’s corrupting offers of “assistance”. By doing so, ally-shoring serves to undergird the long-term economic success and stability of democracies across the globe.

Why Ally-Shoring is Growing in Popularity

The rise in ally-shoring's popularity can be attributed to several key factors:

Economic Considerations: As businesses strive to optimize their operations, the cost advantages of ally-shoring become increasingly appealing. By leveraging the benefits of both offshoring and nearshoring, companies can achieve significant cost savings while maintaining quality and efficiency.

Enhanced Flexibility: Ally-shoring provides businesses with the flexibility to scale their operations quickly. As companies expand or adapt to market changes, they can easily adjust their outsourcing arrangements to meet evolving needs.

Risk Mitigation: Ally-shoring reduces the risks associated with overreliance on a single outsourcing location. By diversifying their outsourcing partners across nearby countries, businesses can mitigate potential risks, such as geopolitical instability or natural disasters.

Conclusion: The Next Level of Outsourcing

Ally-shoring represents the next level of outsourcing, combining offshoring and nearshoring to create a powerful business model. It offers numerous benefits, including cost savings, proximity, cultural alignment, and access to a wider talent pool. While challenges exist, businesses can overcome them through effective communication, knowledge of local regulations, and proactive management of cultural differences. As the global economy evolves, ally-shoring is poised to become an increasingly popular strategy for companies seeking competitive advantage.

FAQs on Ally-Shoring

Q1: What is the difference between ally-shoring and offshoring?
Ally-shoring combines the benefits of offshoring and nearshoring. It involves outsourcing to nearby countries, offering advantages such as proximity, cultural alignment, and time zone compatibility. Offshoring, on the other hand, typically involves outsourcing to distant countries with lower labor costs.

Q2: Is ally-shoring only suitable for large businesses?
No, ally-shoring can benefit businesses of all sizes. While larger companies may have more extensive outsourcing needs, small and medium-sized enterprises can also leverage ally-shoring to access cost savings, talent, and improved collaboration.

Q3: How can language barriers be overcome in ally-shoring arrangements? Effective communication is crucial in overcoming language barriers. Investing in language training programs, using translation tools, and ensuring clear communication channels can help bridge the language gap and facilitate collaboration.

Q4: Are there any specific industries that can benefit from ally-shoring?
Ally-shoring can benefit various industries, including IT, software development, customer support, marketing, and manufacturing. However, the suitability of ally-shoring depends on individual business requirements and the availability of capable outsourcing partners in nearby countries.

Q5: What steps should businesses take to ensure a successful ally-shoring partnership?
Businesses should conduct thorough due diligence when selecting an ally-shoring partner. This includes assessing their capabilities, expertise, track record, and cultural fit. Establishing clear communication channels, setting performance metrics, and regularly monitoring the partnership are also essential for success.