Advantages of Nearshoring
The article aims to discuss the advantages of nearshoring.
The global business process outsourcing market size was estimated at USD 245.91 billion in 2021 and is expected to reach USD 261.9 billion in 2022. (Grand View Research)
The global business process outsourcing (BPO) market is composed of external or third-party business process outsourcing providers located either onshore, nearshore or offshore. There are three types of outsourcing strategies to support business processes according to geographical location. These are namely, onshoring, offshoring and nearshoring.
Onshoring is a type of strategy where businesses decide to outsource to a provider located the same country. The second strategy is Offshoring which is when a business decides to outsource to a provider located in a country offshore.
Lastly, nearshoring is when a business decides to outsource all of part of its services to a provider located in close proximity to and usually shares a border with the client company.
Because of supply chain disruptions and associated rising costs, nearshoring has become a popular outsourcing strategy and an effective alternative to offshoring for businesses.
Companies in the U.S. for example, commonly assign service to nearshore countries in Latin America such as Mexico, Puerto Rico, Colombia and more.
On the other hand, European companies delegate services to neighboring countries like Germany, Poland, Ukraine and more.
According to a June 2022 news release by the Inter-American Development Bank, nearshoring services in Latin America and the Caribbean could add an annual $78 billion in exports of goods and services in the region in the near and medium terms, with the big winners being the automotive sectors, textiles, pharmaceuticals and renewable energy.
Aside from these industries, nearshoring services to third-party providers with dedicated teams help solve the relevant challenge of staffing in technical fields like infrastructure, innovative product and software development, and IT services.
Onshoring, offshoring and nearshoring have advantages. Yet businesses choose nearshoring since this strategy offers many benefits that are distinct to nearshoring. Read more:
Proximity
The close proximity between the company and the nearshoring provider makes it very accessible and affordable to visit the nearshore contact center.
Because of the short distance between countries, aside from being able to save on travel costs it is now easier for businesses to conduct regular site visits, to conduct check-ins with nearshore teams and face-to-face meetings with the nearshore team members or the whole team.
Businesses can also easily check whether systems and operations are up and running onsite.
Similar Time zones
Neighboring countries fall under the exact, or close to exact, time zone of the company willing to nearshore. This means nearshore providers work during the same local workdays and hours of the client company. Time zone differences may exist but are only minimal. This removes the time and effort spent adjusting to time zone differences in company operations.
Similar time zones are important when, for example, meeting and expecting communications with a development team regarding product ideation, customization, development, deployment and upgrades since all members are reachable during the same local work hours.
Cost-saving
Businesses primarily outsource nearshore for lower overhead and decreased costs.
In fact, a Deloitte Global Outsourcing Survey in 2020 found that 87% of IT businesses considered nearshore outsourcing to cut costs.
There are lesser associated labor costs compared to onshoring.
Language and Culture
Nearshore countries have the cultural affinity. Proximity and information exchange play a big role in decreasing the issue on cultural differences.
The shared customs, business practices and professional values are important when communicating and understanding tasks and expectations to mitigate risks.
Nearshoring also enables better communication since neighboring countries most likely use the same language. In Latin America, for example, there are approximately 5.4 million English speakers living in the area. Since plenty of people in Latin America speak English, you can easily find competent nearshore staff who can provide bilingual customer service support.
Service offerings
Nearshore countries are staffing destinations with a highly specialized labor pool. Nearshoring lets businesses work with countries that have technical experts in innovative product and software development, enterprise management and adjoined services at a lower cost than hiring onshore. There are also experienced customer service support and billing specialists who can handle customer concerns, order processing, efficient billing collections and payment tracking.
Compliance
Data protection laws, data regulations and compliance policies are specific to a certain geographical location.
Since nearshore business process outsourcing providers operate in the same area as that of the business, these providers are subject to the same compliance and operating controls in place.
Conclusion
- There are three types of outsourcing strategies to support business processes according to geographical location. These are namely, onshoring, offshoring and nearshoring.
- Recently, nearshoring has become a popular outsourcing strategy and an effective alternative to offshoring for businesses.
- Nearshoring services to third-party providers with dedicated teams help solve the relevant challenge of staffing.
- The close proximity between the company and the nearshoring provider makes it very accessible and affordable to visit the nearshore contact center.
- Similar time zones of nearshore providers let them work during the same local workdays and hours of the client company. This removes the time and effort spent adjusting to time zone differences.
- Businesses primarily outsource nearshore for lower overhead and decreased costs.
- The shared customs, business practices and professional values are important when communicating and understanding tasks and expectations to mitigate risks.
- Nearshoring also enables better communication since neighboring countries most likely use the same language.
- Nearshore countries are staffing destinations with a highly specialized labor pool.
- Nearshore providers operate in the same area as that of the business, these providers are subject to the same compliance and operating controls in place.
Do I Onshore, Offshore or Nearshore?
57% of companies use business process outsourcing to concentrate on core issues, operations, and activities (Statista, 2021)
Establishing aligned incentives and planned implementation methods are critical in contributing to the success and growth of a business when outsourcing.
Businesses need to have established objectives, pricing models, terms, and requirements deadlines and budget before determining the strategy of outsourcing. This way they can determine whether to outsource onshore, offshore, or nearshore.
Process alignment can then be offered by providers need to address your company’s staffing, transformational and operational strategies.
References:
Business Process Outsourcing Market Size, Share & Trends Analysis Report By Service Type (Customer Services, Finance & Accounting), By End-Use (IT & Telecommunication, BFSI), By Region, And Segment Forecasts, 2022 – 2030. https://www.grandviewresearch.com/industry-analysis/business-process-outsourcing-bpo-market#:~:text=The%20global%20business%20process%20outsourcing%20market%20size%20was%20estimated%20at,USD%20261.9%20billion%20in%202022. Grand View Research. Accessed December 17, 2022.
Analysis: 2020 global outsourcing survey – Outsourcing trends and strategies shaping the future. https://www2.deloitte.com/us/en/pages/operations/articles/global-outsourcing-survey.html. Deloitte. Accessed December 16, 2022
Nearshoring can add annual $78 bln in exports from Latin America and Caribbean. https://www.iadb.org/en/news/nearshoring-can-add-annual-78-bln-exports-latin-america-and-caribbean. News Releases – IADB website. Published June 07, 2022. Accessed December 17, 2022.
Dylan Lyons. The 10 Most Spoken Languages In South America. https://www.babbel.com/en/magazine/languages-in-south-america. Babbel. Published February 6, 2019. Accessed December 16, 2022.
Business Process Outsourcing Industry Worldwide – Statistics & Facts. https://www.statista.com/topics/2257/business-process-outsourcing-industry-worldwide/. Statista Research Department. Updated Jul 5, 2022. Accessed December 16, 2022.
