Offshoring and nearshoring both involve the relocation of production, functions, and/or business processes elsewhere. They are, however, fundamentally differentiated by the distance and location of the outsourcing process.
Offshoring takes place when your service provider is physically located far enough to be in operation in a totally different time zone, economic landscape, and legal milieu.
On the other hand, you engage in nearshoring when your provider or partner is adjacent or located close to your home country—in most cases, you also share certain socio-cultural alignments including laws, economic dynamics, and business practices.
Each model comes with its own risks and benefits. Decide on whether you’ll proceed with offshoring or nearshoring after taking into account each of the model’s pros and cons.
- Lower costs
- Time zone difference
One of the best and strongest arguments for offshoring is lower costs. When you offshore, you are almost always sure on savings from your workforce fund. This is because the cost of living in countries where offshoring takes place is reasonably lower, thus resulting in lower salaries for staff and employees in said locations. Production costs are also significantly lower in these countries.
The time zone difference between your home country and your service provider’s location enables you to have your business needs attended to 24/7. Most, if not all, of the offshore facilities feature rotating shifts, which means your production, business processes, and customers can be attended to every hour and every day of the week.
Since your staff are accessible round-the-clock, you allow for greater flexibility without the added cost. You may now choose to use your savings from your workforce fund on other business expansion ventures, instead of hiring and training additional people.
- Communication issues
- Cultural differences
- Time zone difference
It is important that you understand beforehand the possible challenges you might face when you decide on offshoring.
Language barriers and communication issues may arise when you decide on a service provider with a workforce who does not share your mother tongue. This is no reason for panic, however.
Before entering into a contract agreement with your offshoring partner, be sure of the communication competencies of the staff you will be working with. Insist on nothing but excellence. Inspect prospective partners’ track records and choose one with only the most impeccable reviews and results.
Besides language and communication, other cultural differences may also pose a risk in the offshoring process. One of these risks is the difference between the work habits of your offshoring firm’s staff and your own. To mitigate this, be clear and specific on workflows, time frames, and deadlines.
Distance may also present difficulties and added costs, especially when you need to pay your offshoring site a regular visit. To avoid expensive travels, do the necessary preparations and plan your visits ahead of time.
While time zone difference allows for flexibility, it may also give rise to challenges in communication between you and your offshoring firm. It’s daytime where you are and nighttime at your service provider’s location. Effectively respond to this by scheduling online meetings and conferences ahead of time. Simply, sound coordination and planning are key.
Read more on things to consider before deciding on offshoring.
- Same or similar time zones
- Fewer cultural and work habit differences
- Faster decision-making
You share a similar or even the same time zone with your nearshoring partner, making it easier for you to make a call, resolve issues, and ensure response lags are reduced or avoided.
There will also be few cultural and communication issues. Besides your firm's and your nearshoring firm's shared cultural kinship, the close proximity also allows for frequent back-and-forth travel.
Cost-effective face-to-face meetings and conferences can also be conveniently scheduled and held, enabling faster decision-making and implementation of new processes and systems.
- Considerably higher costs than offshoring
- Overestimating cultural kinship
In most situations, nearshoring involves higher costs than offshoring. There will also be less providers to choose from, limiting flexibility, and sometimes, even productivity.
Another risk is your overestimation of the cultural kinship you and your nearshoring service provider share. Remember that even countries right next to each other may have significant socio-cultural and economic differences. Not accounting for these realities may give rise to more serious problems for your business—including additional costs.
Both models—offshoring and nearshoring—have their own unique and shared limitations, as well as benefits and opportunities. Accounting for these and having a clear understanding of your business needs will help you identify which model suits you best. You might even want to consider doing both at the same time—when your specific business needs and goals require it, why not?