Whether a business owner chooses nearshoring, offshoring or outsourcing, these three terms all have sourcing as their common ground. These three are essentially about sourcing workload either from outside the business, inside or both ways.
But how can business owners determine which of these three suits their business best?
Outsourcing’s primary aim is to minimise a business’ internal services in addition to streamlining the supply chain. This is usually done by transferring operational activities to an external company or by tapping third-party elements that can perform these tasks elsewhere outside the business.
Aside from promoting cost-effectiveness, the main goal of outsourcing is to improve efficiency, competence, and ultimately, make improvements on their market position. Once a business decides to outsource, business owners and employees will be able to repurpose savings and focus on improving other important facets of the business.
Outsourcing is primarily utilised in the manufacturing and services sector. While modern outsourcing’s focus was initially on the IT industry, it has since ballooned to include other key fields, thus giving birth to divisions such as Business Process Outsourcing (BPO), and Knowledge Processing Outsourcing (KPO).
Offshoring is essentially the same with outsourcing in the way that it also taps third-party elements to do other business tasks.
However, offshoring usually involves businesses hiring a company in another nation to do the work for them. A good example of offshoring are Australian businesses which outsource some of its operations into other countries such as India. Learn more about the basics of offshoring here.
The main goal of offshoring is to lessen a business’ personnel and employee spendings while still maintaining the quality of work inside the business. If done successfully, offshoring could dramatically reduce a business’ overall costs and could possibly enable the business to have operations around-the-clock.
However, the success of an offshoring endeavour depends on a lot of things, some of them being constant and efficient communication between the parent company and its offshore employees and stable internet connections, especially for IT or digital-based businesses.
Aside from the factors mentioned above, some limitations that offshoring may pose for businesses include differences in work ethic, language, time zones, success levels and the overall structure of work. Business should also avoid certain mistakes when it comes to offshoring, including overlooking proper wage costs for offshore employees.
Nearshoring is almost the same as offshoring since it also outsources labor to another country. However, nearshoring differs in such a way that this usually involves outsourcing to a nearby country, preferably within the parent company’s border.
For example, a German company may choose to nearshore by outsourcing in nearby countries such as Poland. Learn more about the differences of nearshoring and offshoring here.
Nearshoring is a good way for companies to test the outsourcing waters and determine whether this kind of business process will be beneficial to the company. It has a lot of benefits which may not be applicable to offshoring, including similar time zones, lower outsourcing costs, little if not zero liabilities and easy visits from the parent company to offshore employees.
However, businesses which choose to delve into nearshoring might have to face certain disadvantages, including language barriers, differences in work culture and conflicting holidays and rest days. This is in addition to businesses having limited options to choose from since there are very few companies which offer nearshoring services.
Outsourcing, nearshoring and offshoring all have a common end-goal: to make things easier and efficient for businesses while fostering growth at the same time. Businesses need a good grasp of these three sourcing options in order for them to determine what works best for their business.