What Are Offshoring and Nearshoring?

The practice of outsourcing tasks for today’s businesses is at an all-time high. IT outsourcing (ITO) and business process outsourcing (BPO) top the list of industries relying on others to pitch in, save time and human resources, and get results. For example, global BPO outsourcing is poised to grow by $75.89 billion from 2023 through 2027.

Today’s business owners are trying to find new ways to ensure maximum productivity and profitability, and sometimes, that means thinking out of the box and letting talent from around the world pitch in. Outsourcing also goes hand in hand with a workforce that can be adapted and run with remote work. The concept isn’t all that different, with a workforce focused on the same goals in supporting a business and its objectives.

Offshoring and nearshoring are two ways to outsource work beyond the country’s borders. Let’s get into what these strategies are.

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Offshoring vs. Nearshoring

Offshoring and nearshoring allow companies to focus on core activities and competencies, work more efficiently, and accomplish more work in about the same amount of time.

Onshoring is a similar outsourcing method. It entails relocating work to non-metropolitan regions within a company’s home country. This could be likened to hiring an individual in a place like Iowa to contribute to a team or company headquartered in Georgia.

These are all typically supplemental hiring strategies to regular staff augmentation, where you’re hiring individuals in your home base on temporary or permanent staffing.

However, we want to focus on offshore and nearshore matters right now, especially because you may be considering embracing this trend and developing a solid and successful outsourcing strategy.

We can help with implementing either of these into a business. But when and why do companies do this?

Why and When Do Companies Typically Offshore Work?

Businesses often choose to offshore work for a variety of reasons, including the following.

Budget and Cost Savings

Not surprisingly, many businesses embark on an offshoring or nearshoring project for a reduction of costs when building out new teams and projects. Skilled labor in other countries can sometimes come at a more affordable price than hiring in-house in the U.S., but companies will have to decide whether the cost savings match up with potential challenges faced when outsourcing tasks internationally.

Expansion of Access to Talent at the Global Level

Both nearshoring and offshoring offer businesses access to the best of the best candidates without the limitations of borders. When outsourcing through a reputable third party, you can find talent in places like Canada, the United Kingdom, India, and far beyond.

Time Zone Differences Offer Greater Coverage and Customer Service

With various time zones available in different countries, you can provide 24/7 services to your customers without resorting to managing second- and third-shift employees.

The Ability to Focus on Core Competencies

It’s often challenging for startups and small businesses to cover all necessary tasks—especially in the realm of IT, creative, and customer relation efforts. They typically want to get the business up and running, reaching their intended audience with their products and services.

Many businesses outsource everything from IT processes to administrative services, which are set to reach $57.87 billion in 2023 alone. While these tasks are essential for smooth operations, they often require skills, time, and other resources the founders do not have. And they may not have the funding to hire and onboard, so offshoring or nearshoring are ideal and relatively inexpensive alternatives.

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What Is Offshoring?

Offshoring is the transfer or outsourcing of specific tasks, activities, departments, or business processes to a foreign country.

Companies often consider establishing a Global In-House Center (GIC) presence in another location, but they often choose to outsource through a third party that already has a presence in that location. This is because it can be more efficient and cost-effective to work with a third-party company that already has the necessary infrastructure and expertise required to adhere to the local laws and standards.

Alternatively, the third-party company may work with local companies to provide specific services, such as IT or business process outsourcing (BPO). This can be a good option for companies that want to support the local economy or that need access to specialized skills or resources.

A business might move its processes to another country while operating it from the country of the business’s origin. (For example, using call centers in countries outside of the United States.) These businesses are either managed by a subsidiary of the base company or through an external offshore service provider.

There are two types of offshore services to consider:

  • Services offshoring, which involves relocating the company’s technical and administrative services, such as software development, finance and accounting, and human resource management.
  • Production offshoring, which focuses on relocating physical processes like manufacturing, helping to deliver the same high-quality goods at a lower cost of production.

The Pros of Offshoring

As a business builds and scales, it’s important to have growth-enhancing strategies in place. One of these is offshoring, which offers several advantages, including the following:

  • Ability to take advantage of financial-savings incentives associated with labor, real estate, government incentives, and continuous operations and improved control over operations.
  • The opportunity to scale up sustainably and affordably.
  • The chance to reach overseas markets.

The Cons of Offshoring

While offshoring offers businesses several advantages, there are some offshoring cons like the following:

  • Time zone differences can make connecting and communicating challenging.
  • Cultural and language barriers can also prove challenging when trying to collaborate.
  • Quality-related challenges might come up due to differing standards in different areas of the world.
  • Security and the protection of intellectual property (IP) sometimes presents risks, since offshoring providers might not have the same cybersecurity standards in place. Internal security may also become an issue when offshoring work.

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What Is Nearshoring?

Nearshoring allows businesses to work with an outsourcing “near” home, hence the name. However, it isn’t quite as simple as that. For instance, the United States might work with Canadian or Mexican nearshoring teams to save the costs of U.S. outsourcing while still sharing similar or the same time zones.

With this strategy, businesses can have constant and real-time collaboration between their in-house and outsourced teams.

The Pros of Nearshoring

There are many advantages to nearshoring, such as the relatively small time zone differences, fewer cultural and language barriers, and the fact that the nearshoring countries often share similar financial, legal, and security standards, such as data protection regulations.

The Cons of Nearshoring

The cons of nearshoring include factors such as communication barriers. While the United States and most of Canada share English as a common language, there are areas with a French-speaking population. Similarly, it is important to have Spanish-speaking staff at the home country offices to properly communicate with teams in Mexico.

Finally, the cost of nearshoring is likely higher than offshoring.

Are You Considering Offshoring or Nearshoring as Solutions to Grow Your Business?

If you are searching for an affordable way to grow your business and build your teams, our Insight Global team can help. Along with our Evergreen managed services division, we can work with you to determine the best strategy for your operations, and we can help you find and hire the talent you need, near or far—whether that’s with staffing, onshoring, nearshoring, or offshoring.

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