Nearshoring, simply put, is an outsourcing model that involves moving your offshore business operations from a distant country to a nearby country. Essentially, nearshoring brings your business to a nearer shore, closer to your main headquarters.
Nearshoring appeals to business owners because it allows them to maintain many benefits of outsourcing while reducing some of the headaches. At its best, nearshoring creates additional cost reduction without impacting the high-quality product or services.
For instance, many US companies are beginning to take advantage of nearshoring to allow US-based workers to share a time zone with an outsourced labor force and reduce shipping expenses. This may even enable companies to keep using services through the same outsourcing providers.
The term nearshoring is relatively new, as is the practice. Nearshoring is only one of many variations of outsourcing that have developed post-globalization. Nearshore outsourcing sends operations to other countries that happen to be geographically nearby the main company in order to take advantage of similarities in time zone and culture. New companies are increasingly relying on nearshoring from the start rather than attempting distant offshore operations. U.S.-based companies might be interested in learning about nearshoring options for the U.S.
For decades, prevailing wisdom for multinational corporations and businesses was to identify the overall least expensive location and outsource as many operations as possible to that location. Those inexpensive locations were almost exclusively found within foreign countries, and the practice of "offshoring" was born.
Offshoring can be so cost effective, in fact, that it's not unheard of for an entire company to relocate all operations to a foreign shore.
When companies outsource their business processes to other companies within the same country, this is called onshoring. Frequently, outsourcing within the United States involves taking advantage of unique tax advantages and incentives provided by specific states while still operating under the same federal umbrella.
Choosing to outsource operations within your same country often eliminates a slew of challenges, including concerns surrounding juggling the tax law and transportation regulations of more than one country. However, particularly in the US, this can also come at a cost to a business in the form of paying higher labor costs.
The most effective outsourcing locations, whether near or far, will rely on the presence of a core development team and communication strategy that is both solid and reliable. The development process for outsourcing involves identifying and working together to overcome challenges unique to these new locations, so having an experienced team in place, who can communicate challenges in advance and in a timely manner, will make intercontinental cooperation a much smoother process.
One commonly cited challenge of starting a new outsource site is identifying, training, and retaining skilled workers who effectively represent your brand, regardless of location. This process tends to be much simpler in nearshore locations, which are closer to the company's headquarters making communication concerns far less complex.
Out of all the possible ways a company can outsource work, there are specific benefits of nearshoring that are quite unique. The most obvious of these is the increased convenience for communication and scheduling that results from a shared time zone. Nothing quite replaces the ability to problem solve in real-time.
Less immediately obvious than similar time zones, geographical proximity facilitates interpersonal dynamics and helps solidify shared company culture. Distantly outsourced organizations confront inherent cultural differences that can create complications at every step of business operation and increase avoidable frustrations, which may have a negative effect on worker morale.
Nearshoring is also worth considering for any business that wants to establish consistent branding and begin establishing reliability and creating customer loyalty. The availability of viable locations and nearshore options may, and in fact should, also factor into this choice.
Another benefit of being nearby your outsource site is that executives can avoid excessively long over-ocean flights, making business travel much more efficient.
Like other forms of outsourcing, nearshoring allows the ability to source cost-effective, high-quality products, while maintaining a well-suited talent pool. The outsourced country most suited to your industry will depend on local workforce areas of expertise. Check out our listing of Top Countries for Outsourcing for more insight.
Finally, in terms of intellectual property rights, nearshoring operations to a country with similar laws can make a large difference to business owners’ control of their products and brand. Navigating political and economic borders are rarely simple, particularly for businesses that expand into multiple countries.
Although nearshoring is often identified as an ideal choice for business process outsourcing, there are some disadvantages.
Most of the disadvantages of nearshoring are shared with any type of outsourcing site around the world. These would include language barriers, potential supply chain interruptions, and even unanticipated complications that may arise when adjusting to even slight time zone differences.
Another disadvantage of outsourcing, whether near or far, could include extreme weather conditions. Almost every region is prone to one or more types of natural disasters, and maintaining an outsourced site in a different region means your company may or may not be affected by weather conditions at some point.
The most common issue with nearshoring for companies, however, is that nearshoring tends to be a more expensive option than offshoring. However, the ROI (return on investment) is often high enough to offset this added expense.
A company's nearshore opportunities will, of course, be based on that company's location. A business based in Brazil might consider operations in other Latin American countries to be nearshoring. Meanwhile, a China-based company outsourcing to those same Latin American locations would consider that distant offshore outsourcing, with India being a better nearshoring option.
Common nearshoring hubs for U.S. based companies would most frequently include Latin American countries, including Mexico, Argentina, and Brazil, among many others. These countries offer nearshoring benefits for U.S. companies that more distant countries sometimes can't compete with.
It’s also worth noting that finding a nearshoring partner is another alternative to spending the startup cost of establishing an outsourced operation. Working with another business that owns real estate or can provide an exchange of labor can be a valuable solution when seeking to reduce costs.
Nearshoring offers significant benefits to companies seeking to expand operations through outsourcing or for established businesses that want to increase outsourced cost savings. However, nearshoring is not an automatic solution.
Determining whether nearshoring will work for a business is an equation with numerous factors, from company size to the types of products and services it provides.
The best way to determine whether nearshoring makes sense for any given organization is to crunch the numbers. Much of this decision will rely on numerous factors, from company size and types of products and services it provides, to possible nearshore locations, government benefits, and lower costs paid to the remote workforce. Business owners may discover that a nearshoring company will improve profit margins, even despite the possibility of paying slightly higher hourly rates than those paid to offshore company partners.