Outsourcing is the transfer of a process or activity to another company that has the resources and manpower to perform such tasks. It can dramatically reduce the cost of the company, utilize time better by outsourcing routine and time-consuming jobs, and allow a company to gain competitive advantage against other firms. Nearshoring and offshoring jobs can break or make your business depending on how you choose your outsourcing provider. Further understanding of the benefits and drawbacks that it can cause can help prevent future loss in your business.
Nearshoring is a form of outsourcing in which business processes of a certain company are outsourced to another country relatively close to it in distant. More or less, the location of the outsource partner is near or in the same geographical location of that of the company seeking outsourcing services. This condition offers greater security, fewer risks, and uncertainties involved compared with offshore outsourcing.
Some companies prefer nearshoring their business processes instead of offshoring them. This is because companies that are offshoring their tasks usually deal with different issues such as cultural differences, language barriers, and time zone differences. Many companies in the United States prefer outsourcing their non-core tasks to nearby countries. Certain nearshore providers that are available to the US are outsourcing companies in Mexico and Canada. Aside from the low cost and good information technology (IT) infrastructure, both countries are closer to the US.
Moreover, the companies that opt to nearshore their business processes can visit the site of their outsourcing partners since the provider lies in the same location and area, travel is less complicated and accessible to the client. It is much simple for the client to personally address certain problems to an outsourcing company if its only two flights away. Companies, therefore, can save money on travel to the area where they outsource their tasks. Location is an important consideration when the client needs to visit the site of the outsource provider frequently. Aside from that, both the company and the outsource provider share the same time zone. Therefore, the transfer and coordination of information is much convenient compared with companies that outsource their works overseas. It also saves the company from getting phone calls at unholy hours of the day.
But location and time zone are not the usual reasons why companies resort to nearshoring their activities. Some companies give consideration to the culture, mindset, and language similarities–things which a company deems important when outsourcing. When the provider and the client share the same culture and language, the communication and coordination between the two is much easier. Both companies can work easier and avoid culture related problems when working.
A company may also consider the availability of skilled manpower in the area that can be used to increase their competitive edge. The cultural affinity is also a factor because it reduces the problems that may arise from cultural diversity. Since the location of both companies lies in the same geographical area, they share almost the same culture and have better coordination and communication.
Offshore outsourcing refers to the act of employing an external organization that will perform certain business processes in another country far from the area where the business is actually located. The difference between offshoring and nearshoring is the proximity of the providing company to its client. While nearshore service providers are at the same geographical location of that of their client, offshore service providers are located in another country. The frequent reason of offshoring tasks is to reduce the amount of labor cost. There is a great difference in the labor cost between nearshoring and offshoring. US companies tend to pay the same rate that they give to their in-house employees when they nearshore their tasks to Canada and Mexico. Offshoring companies based in India, Philippines, and China charged less compared with its western counterparts. The huge talent pool found in these countries drives the labor rate low.
Companies that tend to outsource their jobs overseas have the advantage of tapping excellent talent pool that other countries can provide. Nearby countries may not be able to sustain the demand for skilled workers in different and specialized fields. In this case, companies may resort to transfer their work overseas where skilled and specialized manpower is present. Further, in areas that require advanced knowledge and expertise such as research and development (R&D), engineering, and product development, nearby outsourcing companies may not be able to supply the needed manpower specialized in these areas. Thus, companies may tend to outsource these jobs to countries that have gained specialization in such fields.
One factor for the continuous growth of offshore outsourcing is the availability of the global electronic Internet network that made data access and transfer, easy and available. The high technology and infrastructure present in outsourcing countries help in the quick access and transfer of information and coordination of issues concerning the outsourcing provider and its client.
The choice whether to nearshore or offshore your non-core tasks always depends on what the company prioritizes and considers relevant for its growth. Only the company can decide and know what is best for it.