Be in the Know: The Difference Between Nearshoring & Offshoring

the difference between nearshoring and offshoring

If you’ve recently built or grown a business, you’ll notice that along with the business boom comes an additional workload. Your current roster of staff may find it hard to keep up with the extra back-end operations and the ever-increasing customer demand. This may be indicating that it’s time to expand your workforce.

To minimize the business impact of expanding your team, you may decide not to invest an excessive amount of time, energy, or resources in recruitment. Browsing through applicants to find the best match for your team can be costly and time-consuming. So, like most businesses in the US, outsourcing can be the answer to your business’ growth pains.

That said, the US has the greatest percentage of outsourced services in the world, with almost 68% of companies delegating their services, and with over 300,000 jobs being outsourced each year. But which outsourcing alternative is the best fit for you? What are the differences between nearshoring and offshoring?

By the end of this article, you’ll be able to assess the risks and benefits of these outsourcing options, thus enabling you to make a well-informed decision.

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, logistics, and manufacturing.

Companies outsource non-core activities to improve efficiency and productivity so that they can focus on the core of their business. This gives the company a stronger opportunity to excel in its area of expertise. Outsourcing is also cost-effective. It significantly cuts down overhead costs, such as utilities, infrastructure, salaries payable to office staff, and office supplies.

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 consider before deciding on the best outsourcing option to address 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. 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 examine the advantages and risks of these two outsourcing models.


The difference between nearshoring and offshoring

Offshoring: The Pros and Cons

The Philippines is one of the most well-known and trusted outsourcing countries. This is largely due to their English proficiency and their westernized culture. Other offshoring pros are:

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, are significantly cheaper in an offshore country. This means that you’ll get access to affordable resources that wouldn’t otherwise be accessible from your home country. Although expenses like travel and shipping may be higher, offshoring is still more affordable than insourcing.

Access to Wider Talent Pool

With choices like the Philippines, India, and China, your business will be exposed to a unique global talent pool. Professionals within the offshoring industry are highly-skilled in different areas of expertise, from IT to customer service, and human resources. Forming an outstanding team for your business has never been easier.

More Outsourcing Options

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

Time-Zone Difference

You can also get work done while you sleep.

Offshoring lets you receive the benefit of the follow the sun business model. This means 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. Your employees won’t have to work late shifts anymore.

Now, let’s examine some offshoring cons:

Communication & Control

While having your business attended to while you sleep is an invaluable benefit of offshoring, this can initially cause communication issues, since setting up meetings across different time zones can be challenging. If you like to have regular in-person meetings with your partners and employees, hiring internationally can be problematic. However, hiring a trusted and familiar leadership team to work with your offshore team can address most of these concerns.

Offshore Manufacturing

Although offshore manufacturing can be highly beneficial for your company because of its reduced costs and high-quality products, it isn’t completely free of risk. The only way you can make sure that an overseas manufacturer will efficiently produce your product is by sealing the deal with them. This may result in losing money and ending up with subpar products.

Quality control is also more challenging with an oversea manufacturer because of the distance; you may not be able to supervise the quality and speed of production. If these are some of your concerns, then nearshoring may be the right fit for you.

Nearshoring: The Pros and Cons

Is offshoring too risky for your business? Then nearshoring may be your ideal outsourcing solution. Nearshoring has become available in many different Latin American countries, for instance, Sourcefit has recently established a top-notch team of professionals in the Dominican Republic. 

Aside from holding much less risks than offshoring, other nearshoring pros are:

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. This gives you more control over the outsourced end of your business.

You can also increase your nearshore team’s loyalty, motivation, and overall happiness by inviting them to your company’s headquarters. Your company will benefit from establishing close and personal connections between your outsourced and in-house teams.

Cultural Compatibility and English Proficiency

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.

The Dominican Republic, for instance, has a strong cultural affinity and economic ties with the U.S. The county is also one of the top 5 English-proficient Latin American countries. According to the EF English Proficiency Index 2021, the Dominican Republic ranks 44th out of 112 countries. Their native language, Spanish, also gives you the possibility of tapping into the vast Hispanic market within the US.

Real-Time Communication

Nearshoring means that your outsourced team will share a similar time zone with you. They’ll be working the same hours as you, which makes communication easier and more seamless. Since they’ll be available during your working hours, you’ll be able to set team meetings and collaboration effortlessly. Real-time communication gives you more control over 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 similar laws and legal constraints as your main business location. This 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 from nearshoring, as the cost of labor and goods in nearshore solutions are higher. Nearshoring, however, greatly reduces additional costs like travel or transport. And by no means is nearshoring expensive. It’s still significantly cheaper than building your own team at home.

Find the Best Fit for Your Business

To learn more about nearshoring in the Dominican Republic, you can read our 5 Benefits of Nearshoring in the Dominican Republic article. We invite you to follow us on social media and to visit our website to learn more about our services.

banner-finalAbout Us: Sourcefit is a widely recognized US-managed business process outsourcing company based in Manila, Philippines. We proudly serve over 100 clients with a workforce of more than 1,300 employees. Our global centers can serve multiple markets, and our staff is highly proficient in English, Spanish, French, and Portuguese. Whether you need a few or many employees, we can help you achieve your business goals and build high-quality offshore teams.

Latest Awards

Sourcefit’s commitment to excellence has been recognized through numerous industry awards and certifications.

We recently received the Fortress Cyber Security Award from the Business Intelligence Group. Sourcefit was also honored with the prestigious recognition of Best Outsourcing Solutions Provider in the Philippines during the 2023 Business Excellence Awards.

Other awards include: FT ranking of 500 high-growth Asia-Pacific, The Marketing Excellence Awards, Inquirer Growth ChampionHR Asia Awards, among others.

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