Nearshoring vs Offshoring

Published on Aug 22, 2017 by Chrishelle Mony

What's the best option to scale your business and improve operational efficiency?

 

Outsourcing has earned a bad rep over the years and is often unfairly associated with cheap labor and poor delivery. Truth be told, most companies ‘outsource’ in one way or another - from the more obvious overseas call center, to the contracting of a graphic designer or web development agency. Essentially a way to maximize profits and minimize costs, outsourcing can be done either by nearshoring or offshoring. But what exactly do these two terms mean? Let’s take a closer look:


Nearshoring: Outsourcing business operations to a country within the same broad geographic region, where costs are more economical than hiring locally (but typically not as cheap as an offshore team). American firms that outsource to Central and South American countries like Colombia, or UK organizations nearshoring IT services to Eastern European countries like Poland, are classic examples.

Offshoring: Relocating business processes to faraway locations with lower expenses and labour costs is offshoring, or what many also refer to as “offshore outsourcing.” For instance, American firms often offshore to Asian countries like China, the Philippines or India.


At first glance, it may appear that distance is the only thing separating these two. However, there are fundamental differences and several reasons why companies choose one over the other. These differences become glaringly apparent when weighing up their pros and cons:

 

PROS NEARSHORING OFFSHORING
Costs Saves you a lot of money in comparison to the costs of hiring an in-house team.

 

Cheaper still than nearshoring as lower costs for everything from material costs to research, labor market, cost of living, wages etc.

 

Time Zone

 

Small if no time-zone difference, which means no problems syncing schedules and coordinating meetings.

 

Often a location with a polar opposite time zone which can be advantageous if you want to offer 24/7 customer support.
Culture Usually fewer cultural discrepancies and subsequently less internal problems.

 

Cultures that are vastly different but this can be beneficial if the offshored staff are in a market that the company wants to expand into to grow their business

 

Legislation

 

Similar legal and financial constraints that apply to most countries within the same geographic region. Being bound by the same legalese and data protection laws is an important advantage that nearshoring countries have.

 

 NOT APPLICABLE
Responsiveness

 

Quicker response times help damage control and crisis management so problems are resolved effectively.

 

 NOT APPLICABLE
Geographic Proximity

 

Travel to nearshoring partners is less expensive and time-consuming and can therefore be undertaken more frequently.

 

 NOT APPLICABLE
Control and Ease of Collaboration

 

Degree of control is higher with nearshoring, checks and balances easier to enforce and it is easier to travel to offer guidance and training when needed. Increased face-to-face communication is also bound to result in increased productivity and collaboration.

 

 NOT APPLICABLE

 

CONS NEARSHORING OFFSHORING
Costs

 

Finding a nearshore partner is more difficult as there are relatively fewer options.

 

 NOT APPLICABLE
Availability

 

Finding a nearshore partner is more difficult as there are relatively fewer options.

 

 

There are many providers so it can be difficult to navigate such a saturated market and find those who will deliver quality for your clients.

 

Culture

 

While there is more cultural affinity, there are still nuanced issues that may arise such as subtle work habits or local holidays that vary within the region. For instance, the US has the fewest number of bank holidays in the Western world, whereas potential nearshore partners in Latin America have much higher numbers than average.

 

Cultural differences are likely to be vast and while most partners will make the effort to adjust their schedule and work styles to suit yours, adjustments will still be required, which are rarely simple to say the least.
Time Zone  NOT APPLICABLE

 

Significant time zone differences bring challenges of shifts and overtime pay, not to mention, trying to work out schedules in such a way that it works equally well for both sides.

 

Distance  NOT APPLICABLE

 

Geographical distance makes visiting offshoring partners difficult and costly.

 


Which Outsourcing Model is the Better Option?


So, what is better - nearshoring or offshoring? The answer depends ultimately on your organizational goals and risk management strategy. To determine which works best for your company, the particular traits of an ideal partner should be weighed up instead of the market itself. However, when considering regional, financial and economic stability, legislative and cultural compatibility, ease of collaboration and communication, agility and responsiveness, it’s almost always Nearshoring that wins out.

 

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