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Nearshore vs Offshore Outsourcing: What's the difference?

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Considering outsourcing your business processes, but not sure which option is best for your company? These days, outsourcing can occur locally, fairly nearby, or clear on the other side of the world. There are benefits to each type of outsourcing, though, and picking the best option for your organization will depend on your goals and preferences.

If you’ve already tapped your local outsourcing options (these would include local freelancers, consultants, and other third parties), then your outsourcing options really fall into one of two buckets: nearshoring and offshoring. Read on to discover the differences and benefits of offshore vs nearshore outsourcing.

What Do Outsourcing Companies Do?

Outsourcing involves partnering with off-site teams who can handle repetitive and standardized tasks, allowing businesses to focus their human resources on more technical skills that need to be handled internally. Handing off call center activities, such as customer support or other inbound call center services, to one of the top countries for outsourcing is just the start.

Call center partners do more than just answer the phone. They can also manage IT services like help desk support and product training. Alternatively, you may outsource your project management tasks to a company that specializes in securing the various aspects of a project and keeping timelines intact. A third option is to outsource hardware or software development, taking advantage of highly skilled software engineers who may not live in your immediate area.

In short, outsourcing companies help businesses in a wide variety of ways, always with the end goal of reducing operating costs and improving in-house human capital performance. One way to control costs and improve in-house performance is to improve talent acquisition for your in-house roles. An off-site partner can help with both!

Best Industries for Outsourcing Business Processes

Almost any type of business that wants to control costs by optimizing its workflows can benefit from outsourcing. That said, the most common industries that utilize off-site partnerships include:

  • Finance: Outsourcing menial tasks to improve accuracy, security, and industry compliance
  • Healthcare: Reducing reimbursement times and costs associated with coding errors
  • Hospitality: Improving customer service in reservations and F&B delivery
  • Insurance: Reducing in-house workloads and operating expenses
  • Technology: Software development, enhanced security architecture development, and agility to scale
  • Manufacturing: Creating parts and handling product assembly. 
  • Marketing: Providing customer engagement, marketing efforts, surveys, and support services
  • Telecommunication: Managing billing support, outage response, and promote specials to current and potential customers

Nearshore Outsourcing

Nearshore outsourcing is defined as outsourcing processes to a company that’s in geographical proximity of the originating business location. Usually, nearshore services occur within a 1- to 2-hour time zone difference between the outsourced company and the originating client company.

United States and Canadian businesses may partner with nearshore companies in neighboring countries, such as Mexico, because the time zone is more compatible with the company's operating hours. For European firms, nearshoring would include partnering with other European companies, or possibly Mediterranean, western Asian, or north African countries.

Pros & Cons of Nearshoring

Businesses often opt for nearshore outsourcing partners to ease potential cultural differences, language barriers within the talent pool, and challenges managing significantly different time zones.

Another reason nearshoring is becoming popular is the cost savings that a nearshoring relationship can provide for the originating business. For example, a U.S. software company that outsources development work to a nearshore software development firm in Mexico would significantly reduce costs without compromising quality. According to PayScale data, the average software developer's salary in Mexico is just $16,721.16 USD, compared to at least $287,152 USD with one to four years of experience in the United States.

While optimizing workflow and saving money is advantageous for many businesses, there are some potential disadvantages of this outsourcing model.

Nearshoring is usually less expensive than onboarding and managing more in-house staff. However, this model can sometimes be a bit more expensive than offshoring options, depending on the service you’re looking for. And, even though there are many nearshore partners that only hire agents with exceptional English language skills, some companies in the United States have found their language alignment experiences were only medium to high, when compared to exceptionally high-quality onshore options.

Furthermore, cultural differences, such as European Right to Disconnect Laws that stipulate most professionals are not required to respond to after-hours emails, could conflict with client and customer service expectations.

Offshore Outsourcing

Unlike nearshore outsourcing, which involves choosing a partner from a neighboring country, offshore outsourcing usually employs an offshore team located in a distant country. Many offshore outsourcing companies can be found in China, the Philippines, India, and European countries such as Poland and the Czech Republic

Some of the most popular activities to outsource include customer support, finance and accounting, human resources, inbound and outbound call centers, and procurement and supply chain efforts. Offshore software development remains as popular as ever, with trends in big data and cloud computing leading the way.

Industries that may utilize offshore resources more frequently than nearshore outsourcing partners include:

  • Chemicals & Materials: Outsourcing research and development processes
  • IT: Software engineering and development
  • Oil & Gas: Digital oilfield services and analysis

Pros and Cons of Offshore Outsourcing

Perhaps the biggest advantage of partnering with an offshore outsourcing firm is the lower cost. Compared to onshore and nearshore outsourcing, this type of outsourcing model is often the least expensive option.

The overall lower cost comes about in a variety of savings-measures, from lower production costs to reduced payroll. Having the agility to respond to fluctuating demand, and the opportunity to optimize internal workflows, are added benefits.

The decision to utilize offshore software development and other business processes is very appealing to many business leaders. However, saving money may come with a high price – there are some disadvantages as well.

Time zone differences are perhaps the first challenge for many businesses. Getting up at 3 AM to reach a supervisor to discuss service may be a deal-breaker for some. Other challenges like language barriers often frustrate customers. Non-native English speakers in a call center may not have full command of the language, may use inappropriate phrasing, or may not completely understand the caller's inquiry.

Cultural differences are another challenge. According to the European Academy of Executive Education (EAEE), incorrect language translations can cause confusion in communications. Cultural stereotypes can lead to assumptions that can shape a long-distance conversation and either elevate or reduce expectations.

Onshore Outsourcing

In addition to nearshore and offshore options, there’s also onshore outsourcing to consider. Onshore outsourcing involves handing off business processes to a national outsourcing partner—for instance, a US company outsourcing certain roles to external agents somewhere else in the United States. These solutions are typically a less expensive way to expand your talent pool than recruiting, hiring, training, and retaining an in-house team. On the other hand, costs for onshore outsourcing will usually be higher than both nearshore and offshore solutions.

Often, clients can find a partner that is in the same city, or sometimes even in the same neighborhood.

Onshore Outsourcing: Advantages & Disadvantages

Even if the chosen provider is located across the nation, there are some definite advantages to onshore outsourcing.

The most obvious benefit to onshoring is that businesses and outsourcing partners are in the same time zone, or time zone differences are minimal. This results in significant overlap in work hours for on-site and off-site workers, making communication and collaboration much more effortless.

Another benefit with onshoring is that managers can often find highly-trained outsourced workers who are already familiar with the company itself, or at least the industry. Onshore development frequently aligns nicely with company goals and market conditions. And language and cultural challenges are not common in with onshore outsourcing.

While the benefits of onshore outsourcing typically outweigh the disadvantages, there are a few less advantageous aspects of onshoring to consider. The most significant negative is probably the cost associated with IT software development. Salaries are much higher in the United States and Canada than you will find in Asia, Latin America or the Philippines.

Another potential challenge is finding a large pool of skilled technology talent, especially when looking for the top talent in the software development realm. There is a shortage in the United States of skilled IT workers. In fact, CNN Business reported there were currently more than 11 million IT jobs available in January 2022, based on the U.S. Bureau of Labor Statistics published in May 2022.

Benefits of Outsourcing: An Overview

Outsourcing administrative tasks and hiring external partners to replace or support in-house staff is a proven strategy that provides cost savings. Compared to hourly rates for payroll and other costs of maintaining a well-qualified, highly effective on-site workforce, outsourcing companies provide real-time, measurable savings across multiple spending departments.

Outsourcing typically:

  • Enhances positioning against ecommerce competition
  • Improves internal time management and productivity
  • Reduces working hours
  • Lowers costs of production and payroll
  • Expedites the development process
  • Curtails software development costs
  • Expands the talent pool without increasing internal staff numbers
  • Provides high quality work product outcomes
  • Supports startup processes from end to end
  • Controls labor costs by adding an off-site or offshore team that works in tandem with your in-house team
  • Enables supply chain resiliency

Each outsourcing model has its own distinct set of advantages and disadvantages. While prices in China and India may be lower than prices in Mexico, Canada, and the United States, overcoming language and cultural barriers may be challenging. And, onshoring provides a sense of connectivity with a shared language and similar time zones, but the cost of IT talent will drive prices up when compared to both nearshore and offshore solutions.

Companies often choose BPO outsourcing partners to help them better allocate human resources and reduce costs, especially costs associated with inefficient workflow patterns and duplication. Business processes may be done more successfully with a remote team as compared to an off-site workforce.

An ideal outsourcing partner has the skills and experience to create a service package that aligns with their client's needs and the client's customers' expectations. TDS has the capability to turn challenges into opportunities.

For example, research shows that “58% more customers prefer to solve urgent issues by calling for support rather than [using] other channels.” To overcome language and cultural barriers and enhance web-based call center security, TDS deploys Versant and remote monitoring software that provides real-time images and audio that allows “candidates to take their [English skills and proficiency] test off-site at the convenience of any location to help recruiters in the major shift of a virtual recruiting process.” Customers have an added layer of security and a recorded option for monitoring audio, internet activity and images that may show signal suspicious behaviors while processing calls.

With more than 30 years of experience serving global clients, TDS is prepared to help you explore call center solutions and other outsourcing needs. Fill out a quick form today to learn more about how we can work together to reach your business goals.

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