Be in the Know: The Difference Between Nearshoring & Offshoring

 

If you’ve recently built or grown a business, you’ll find that along with the business boom comes an additional workload. In the near future, your current roster of staff will find it hard to keep up with back-end operations and customer demand. In which case, you will likely have to expand your workforce.

 

To minimize the business impact of expanding your team, you may decide not to spend too many resources, money, or effort on recruitment. Let’s be honest, sourcing for applicants and hiring the best professionals for your team can be costly and time-consuming. Like most businesses in the US, outsourcing – may it be nearshoring or offshoring – can be the answer to your business’ growth pains.

 

Fun fact: Did you know that the US has the most percentage of outsourced services in the world, with almost 68% of companies delegating their services with over 300,000 jobs outsourced out of the country each year?

 

Now, let’s talk about the outsourcing options available to you – the differences between them, and the risks and benefits that may come from each.

 

Understanding Outsourcing

Outsourcing was recognized as a business strategy in 1989 and became an essential part of business economics in the 1990s.

 

Outsourcing is the general term used to describe the business practice of hiring a third-party company or solution to perform services or create goods that used to be handled “in-house” by the company’s own staff or employees. This covers a wide range of services from customer support to back office to logistics and manufacturing.

 

Generally, companies would outsource non-core activities to improve efficiency and productivity for the core of their business. Outsourcing also helps cut down significantly on business spendings like employee salary, technology and equipment, and other overhead costs.

 

Nearshoring vs. Offshoring: What’s the difference?

While Nearshoring and Offshoring both represent the business practice of hiring a third-party partner to cover work or services for your business, there are crucial differences that you should take note of before deciding on the best outsourcing option to fit your business needs.

 

  • Nearshore Outsourcing means taking an outsourcing provider from a nearby country, usually sharing a border or in the same continent as your main business location – like Latin America or Canada.  This allows you to increase the size of your talent pool while still having relatively easy communication through shared time zones. Simply put, nearshoring is the middle ground between offshoring and hiring a local team.

 

  • Offshore Outsourcing, on the other hand, is hiring a team or service provider from a distant country – typically several time zones away and on a different continent. Some of the most popular destinations for offshore outsourcing include the Philippines, India, and China where the pools of talented professionals are larger and come at the lowest possible cost.

 

Now let’s get into the advantages and risks of these two outsourcing models.

 

Offshoring: The Pros and Cons

The Philippines is one of the most well-known and trusted countries when it comes to outsourcing – largely due to the English proficiency of Filipino professionals and the highly-westernized culture in the country. Here are other pros and cons of Offshoring that you should take note of:

 

  • Greater Cost Savings

Offshoring lets you save up to 70% to 80% of operational costs. The cost of goods and services – especially employee salary and technology- will be significantly cheaper in an offshore country which means that you will get access to resources that would not have been too expensive if you were to purchase them from your home country. However, other expenses like travel, shipping, etc. may be higher.

 

  • Access to Wider Talent Pool

With choices like the Philippines, India, and China, your business will be exposed to a global talent pool that you can recruit to be a part of your offshore team. Most professionals that are part of the offshoring industry in these countries are also highly-skilled in different industries, you should have no problem finding the right candidate!

 

  • More Outsourcing Options

If you’re looking to outsource your team, you’re more likely to find offshoring options than nearshore partners since there are a lot of companies in Asia that offer offshore solutions. So if you need access to specialized capabilities, technology, or expertise that are hard to find in your continent, offshoring’s your best bet.

 

  • Time-Zone Difference

You can get work done while you sleep! Offshoring lets you receive the benefit of the Follow the Sun business model. Essentially, what this means is that your company will be able to address business needs 24/7 by taking advantage of the time zone difference between the geographic locations of your local and offshore teams – without needing any of your employees to work late shifts.

 

  • Communication & Control

While having your business attended to while you sleep is an invaluable benefit of Offshoring, it does mean exactly that – your offshore team would be doing most of their work while you sleep. This can cause communication issues at the beginning especially since working in different time zones can make setting meetings a challenge. If you like to have regular in-person meetings with your partners and employees, hiring internationally can be problematic. However, hiring a good leadership team – that you know and trust – to work with your offshore team can definitely address most of these concerns.

 

Nearshoring: The Pros and Cons

Is offshoring too risky for your business? Then we have just the thing! Nearshore solutions have become available in many different Latin American countries like the Dominican Republic and Mexico. Read on if you want to know more about Nearshoring:

 

  • Geographical Proximity

Nearshoring involves countries that are easy to visit which will allow you to travel to your outsourced team more frequently and at a lower cost. Sharing a border or being on the same continent means that meeting your nearshore teams can be a 1 to 2-hour plane, car, or train ride away. You can get more control over the outsourced end of your business since you can visit them often.

 

Pro Tip: You can increase your nearshore team’s loyalty and overall happiness by inviting them to your company’s headquarters! Even remote teams can benefit from close and personal connections.

 

  • Cultural Compatibility

Closer proximity means that there will be fewer cultural differences between you and your outsourced team. You’ll likely share similar values and principles with your nearshored team which would make your working ways mesh well. With nearshore outsourcing, you’ll run into fewer cultural obstacles like miscommunications or differences in beliefs.

 

  • Real-Time Communication

Nearshoring means that your outsourced team will share a similar time zone with you. They will be working the same hours as you which makes communication easier and more seamless. Since they will be available during your working hours, setting team meetings and collaboration will be a piece of cake. Real-time communication removes the challenges of working in different time zones which gives you more control and influences the outsourced end of your business.

 

  • International Trade Agreements

The Dominican Republic and other Latin American countries are part of multiple international trade agreements. By nearshoring, you can expect your third-party outsourcing partner to be familiar with the same laws and legal constraints as your main business location which makes holding and closing business deals easier.

 

  • Slightly more costly than offshoring

Nearshoring isn’t as cheap as offshoring. While you can get up to 80% in cost savings by Offshoring, you can only get 50 to 60% cost savings as the cost of labor and goods in Nearshore solutions are higher. But nearshoring greatly reduces additional costs like travel or transport. With that being said, nearshoring is by no means expensive – it’s still significantly cheaper than building your own team!

 

Find the Best Fit for Your Business

Ready to build a team of offshore professionals to elevate your business? Get in touch with Sourcefit and book a free consultation to find the best custom outsourcing solutions for you!