Discover the Benefits of Nearshoring and Learn Why It’s So Popular
Outsourcing is quite a common business practice nowadays, especially in the software and IT industry. Companies today outsource a variety of different functions, such as design, development, QA and testing, marketing, and much more. But all outsourcing isn’t made equal. There are different types of outsourcing, one of which is nearshoring.
Now, this term may be somewhat of an unknown for many. However, another type of outsourcing called offshoring is quite popular. And while it has been the primary mode of outsourcing for businesses for decades, recent years have shown a rising trend towards nearshoring.
But what is it exactly? How does it differ from offshoring? And why should you opt for it instead of a proven model like offshoring? Let’s take an in-depth look at nearshoring and see why professional software outsourcing services are now moving towards a nearshore model.
What is Nearshoring?
First, let’s rehash the meaning of outsourcing. Outsourcing refers to the process where a company hires another company to perform a specific function or task for that mother company. The task or process is assigned on a contractual basis, and there are three main style of outsourcing, each of which refers to individual software development outsourcing models:
Onshoring means that the company performing that activity for the parent company is located within the same geographic region. Offshore refers to the fact that the parent and the service provider are located far away from each other, meaning they are not immediate neighbors.
So what is nearshoring then? Well, nearshore outsourcing is kind of like a bridge between onshore and offshore. Unlike onshore, it isn’t in the same geographical region, but isn’t too far away like offshore either.
More often than not, nearshoring is often done among neighboring countries, and it offers great value to those who use it. But despite the fact the countries have been imposing additional taxes on businesses operating in other countries in order to bring them back, nearshoring has been getting quite popular.
Nearshoring vs. Offshoring vs. Onshoring
When we talk about the benefits of offshoring vs Onshoring or nearshoring, there is a lot of debate. There are avid supporters for each of these three types, and everyone is convinced that their side is correct. Now, why companies outsource software development is another debate in itself; however, let’s discuss why a company may choose one specific style of outsourcing over the other.
So, how does nearshoring fare against offshoring or Onshoring? Let’s find out.
Nearshoring Vs. Offshoring
For the most part, these two are quite similar in operation. The only major difference between the two, is the distance between the parent company and the service provider. Generally, the offshore service provider is quite far away from the parent company, sometimes even on different continents.
Nearshoring on the other hand, provides a somewhat similar service, albeit a little closer in proximity. This closeness can often simplify a number of processes and methods, because they are near and within the same time zone.
For example, due to the different time zones, there is often a significant lag or delay in addressing feedback when offshoring. However, that same scenario could be addressed quicker in case of a nearshore model.
On the other hand, due to its near proximity to the host, chances are that any monetary benefits, if at all, are going to be meager when nearshoring. However, when offshoring, the service providers are mostly situated in regions with a lower cost of life, and lower wages. This makes offshoring the more lucrative method.
In the end, it boils down to the priority of the host company. if saving costs is a priority, then offshoring is better than nearshoring. But if control and feedback is important, then nearshore is the better choice of the two.
Nearshoring Vs. Onshoring
Its very rare, especially in the IT industry, to find examples of Onshoring. Most businesses looking for an outsourcing partner try to look for the best candidates in regions far away from their home in order to save costs.
However, in circumstances where one side is trying to outsource in order to fill a skill or resource gap, regardless of the cost, then an Onshoring partnership would be the best way forward. However, keep in mind that Onshoring would generally involve higher costs than that generated in offshoring or nearshoring.
That is why its generally preferred to use nearshoring instead of Onshoring in the majority of scenarios.
Benefits of Choosing Nearshoring for Your Business
As evident from above, nearshoring has a lot of benefits for a business. It allows for lower costs, as well as a host of other benefits that companies can enjoy. Another great benefit for nearshoring is that your deliverables are more likely to be of a higher quality, due to your closer proximity to the service provider.
These are just some of the most cursory benefits that nearshoring offers over offshore services. But this is just the tip of the iceberg. Let’s dive in and find out what is about nearshoring that makes it such an attractive figure over offshoring.
One of the immediate benefits of nearshoring is a reduction in your software development cost incurred in developing a project. Now, there are many ways that you can reduce costs using nearshoring. First, let’s suppose that industrial manufacturing taxes are higher in your country than your neighbors. You can use nearshoring to circumvent that.
Another scenario is that wages are higher in your country due to a lack of skilled professionals. So the limited number of professionals find it easy to demand higher wages and benefits than their counterparts in neighboring countries. By outsourcing to a nearby country, you will be able to reduce that cost too.
Finally, let’s suppose your country has international operations, and shipping your manufactured goods from your country costs you quite massively, due to being a landlocked state. However, manufacturing that same product in a nearby country with access to a commercial port will help you reduce shipping costs quite massively.
For example, let’s take the example of the USA, which has Canada bordering one end, and Mexico the other. If we consider the three countries mentioned, there is a massive difference between the average salaries for software developer between them.
For instance, Mexico has the lowest cost per capita among the three countries. That means that US companies can get by paying developers in Mexico far less than what they would have to pay them in the US or Canada.
And despite the massive reduction in the wage cost, the outsourced service would be near enough to visit if needed.
Time Zone Similarity
One of the biggest issues many companies have with offshoring is the massive time zone differences between the parent company and the outsource service provider. Nearshoring on the other hand, either reduces it to a manageable level, or removes it entirely.
This allows a smooth process of business operations running in tandem with each other. That allows the company to have universal business hours without needing to schedule professionals to cater to the outsourcing company post normal working hours.
Generally, when companies use an offshore service provider, they either have people who work the after-hours shift in order to communicate with the offshore service provider. In other scenarios, it’s the outsourcing services company that works according to your time zone.
Either way, that can be a problem in terms of company and team flexibility, while at the same time increasing the amount of time needed to resolve an issue, or address a complaint.
Influence over the Project
Another great feature of nearshoring the easy access to the outsourcing service provider by the parent company. Due to being nearby, the representatives from the parent company will be able to view and control the project progress.
Moreover, the proximity to the parent company’s country means that there might be an overlap in the culture and language of the two teams. This would allow for a seamless teamwork compared to the scenario where the outsourcing services provider is halfway around the world.
Overall, both these factors allow you to have a greater control over your project, influencing its development quickly and easily whenever required. This is an important factor when it comes to projects that relate to your digital transformation strategy, as that requires you to have a strict control over the execution.
Wider Pool of Talented Resources
Its often seen that a region might have a surplus of a specific type of skilled resource, while their immediate neighbors have barely enough to fulfill a fraction of their demand. That calls for another great reason as to why companies outsource software development to nearby countries.
Finding the right talent for your business needs doesn’t require you to go halfway around the world. Sometimes, a country right next to yours may have the talent you require. For example, you need to hire a team of cloud engineers for your European company, but they are a rare resource in your country.
Now, instead of looking for a team of resources from somewhere in Asia, why not hire them from Serbia, Poland, or Hungary? These countries would be nearer to you, have similar culture and values to you, and will allow you to assimilate them easily within your team if you decide to go for staff augmentation later on.
Expand Your Market
Now, we have discussed a few of nearshoring’s most direct impacts. But how about some indirect ones, or maybe some perks?
One of the top benefits of nearshoring is that it allows you access to a variety of new markets and audience. However, that is something that can be a hit-or-miss for an offshore company. Let’s say your product is designed specifically to colder, eastern European market.
However, developing that product via an Asian company may not offer you any additional benefits. Using an eastern European service provider on the other hand can help you open up and connect with new markets that can help you grow your business in the long run.
Choosing the Best Outsourcing Model for Your Company
There are several ways to ensure that the outsourcing service provider you choose is perfect for your business. For some businesses, it doesn’t matter whether they offshore or nearshore their project. However, in some instances, and for some projects, it can matter a lot.
Nevertheless, a few factors can dictate how well the relationship is going to be.
- Easy and constant communication via a universal language of business
- Compatibility of social cultures and business cultures of the two companies
- The parent company’s tendency to micromanage their outsourced projects
- The presence of a framework or infrastructure that promotes the inclusion of external teams
- The assimilation of your outsourcing company as an important partner in your project’s development
These factors are the most common ones that affect how well you and your outsourcing service providers work together in order to deliver a quality product while minimizing risks of outsourcing.
To sum it up, both nearshoring and offshoring offer a host of benefits to their users. However, when we talk about ease of operation in outsourcing, what is nearshoring but the epitome of convenience? If you are looking to choose between the different types of outsourcing for your business, the benefits above can help you choose the perfect solution for your software project.
1- What is an example of nearshoring?
Nearshoring is a type of outsourcing that refers to a company outsourcing a specific business operation to a company that is not in the same country, but is generally within or near the company’s time zone and cultural region. Think of a company in the UK or Germany outsourcing to a company in Poland.
2- What is the purpose of nearshoring?
Nearshoring allows businesses to keep their critical operations close to each other, yet still far away as to benefit from a more cost-effective region nearby. For example, a manufacturing company in the US who prefers to outsource to Mexico instead of Indonesia, due to its relative proximity to the parent company’s country.
3- What are some benefits of nearshoring logistics operations?
By nearshoring operations like logistics, you can drastically cut costs while boosting your productivity and efficiency rates heavily.