Latin America is emerging as a hotspot for nearshoring, fueled by a combination of strategic advantages and evolving global dynamics. The region has benefited from multiple macro trends, and the opportunities for investing in and capitalizing on this secular trend continue to grow.

With its geographical proximity to the United States and a growing pool of skilled labor, Latin America has positioned itself as an attractive destination for companies seeking to move manufacturing and service operations closer to the US.

Sectors such as technology, automotive, and consumer goods have experienced significant changes as a result. Supply chains and business models are being reimagined in real time. For the US, this nearshoring, or ‘reshoring,’ represents both an economic and geopolitical imperative. Notwithstanding the rhetoric and domestic initiatives from the new US administration, the region is expected to continue experiencing nearshoring growth in digital services and technology.

Nearshoring and digital transformation have been key drivers, and the region's cultural alignment with North American consumers further facilitates smoother business interactions. As companies aim to achieve sustainability and resilience in their operations, nearshoring in Latin America offers a pathway not only to enhance profitability but also to build robust partnerships that can drive long-term growth. With its strategic advantages and evolving capabilities, Latin America is poised to become a major player in the nearshoring landscape.

This raises an important question: just how big is the nearshoring opportunity in Latin America right now?

At Artemis, we help Tier 1 private equity and strategic acquirers identify, assess, engage, and acquire technology and professional services businesses worldwide that align with their investment theses. With nearshoring being a major component on many of our clients' agendas, we were engaged several times to map and engage with large portions of this market. Below are some highlights from our analyses. First, here is a visual representation of the number of assets included in our evaluations:

As expected, the distribution of businesses broadly correlates with population. The prominence of Brazil and Mexico in this space does come with some nuance, but their large workforces make their significant impact unsurprising. Smaller emerging hubs like Costa Rica and Uruguay, where growth outpaces population size, are noteworthy standouts. Additionally, the Dominican Republic, which posted one of the highest growth rates in headcount last year, and Colombia, known for its high-quality firms, are regions to watch.

A few additional insights and trends from our research and engagements are worth highlighting:

• The ecosystem remains small and fragmented: Close to 70% (roughly 900 firms) have 50 or fewer employees.
• Growing trends: On average, headcount in this sector grew by 25% over the last 12 months across the region, driven primarily by Mexico, Brazil, and Argentina.
• Scope for outside capital: Approximately 90% of businesses are bootstrapped and have limited outside capital. Many of these companies could achieve significant growth with modest infusions of funding.
• Assets entering a ripening phase: The average age of these companies is just under 15 years, with 50% falling within the sweet spot of 10-15 years.

While these sectors display great variety and fluidity, the underlying fundamentals and dynamics point to continued growth and investment opportunities in the region.