Setting the Difference between Nearshoring and Offshoring

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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 it to gain a 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 losses in your business.

Nearshoring
Nearshoring is a form of outsourcing in which business processes of a certain company are outsourced to another country relatively close to it in distance. More or less, the location of the outsourcing partner is near or within the same geographical location of that of the company seeking the outsourcing services. This condition offers greater security, fewer risks, and uncertainties involved compared with offshore outsourcing.

Some companies prefer nearshoringe their business processes instead of offshoring them. This is because companies offshoringe their projects usually deals 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, these countries are closer to the US.

Moreover, the companies that opt to nearshore their business processes can visit the site of their outsourcing partners. Because 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 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 this, both, the company and the outsource provider share the same time zone. Therefore, the transfer and coordination of information is much convenient compared to companies that outsource their works overseas. It also saves the company from getting phone calls during unholy hours of the day particularly .

But location and time zone were not the usual reasons why a company resort to nearshoringe 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 easily 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 same geographical area, they share the almost the same culture and have better coordination and communication.

Offshoring
Offshore outsourcing refers to the act of the 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 in the same geographical location as that of their client, offshore service providers are located in another country. The frequent reason for 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 to their 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 worker in different and specialized fields. In this case, companies may resort to transfer their work overseas where skilled and specialized manpower is present. India for example has a huge pool of IT professionals. US based companies may depend on their outsourcing companies for IT related jobs. Furthermore, in areas that required 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.

Aside from this, certain countries have developed a specialization over a period of time that other countries may tap. India, for example remained as a dominant offshore location for all types of business processes particularly IT outsourcing and business process outsourcing. For procurement functions, China is the best option since the Chinese were more adept in the process of buying. The Philippines, on the other hand, is highly skilled in contact centers and customer service.

The choice whether to nearshore or offshore your non-core tasks always depends on what the company prioritizes and considers relevant for its growth. You can decide which one is the best for your company to choose.

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