How Do You Define Nearshoring and its Benefits?

Frequently Asked Questions About How Do You Define Nearshoring and its Benefits?

Understanding Nearshoring Definition

While the definition of nearshoring is the process of outsourcing work to a company or individual located near your own, the involved parties or companies benefit from shared or standard dimensions and proximity.

These include the same time zone, language, geographic, economic, and political linkages. With such capacity, your company can easily consider and try various technology ecosystems, tap into diverse employee experience, enhance project management, and manage financial obligations efficiently.

Generally, nearshoring means an organization has moved specific operations to a lower-cost company within a shared or nearby geographic region. Nearshoring solutions are also expected to grow significantly, providing efficient and robust IT solutions; as indicated by Harvard, “global information systems development outsourcing is an apparent trend that is expected to continue in the foreseeable future.”

Benefits of Nearshoring

When a company understands nearshoring and decides to outsource through this strategy, it gains numerous benefits that streamline operations (https://sonatafy.com/top-7-advantages-of-nearshoring-for-your-business/). While methods like offshoring were famous, some significant setbacks, such as language and time zone differences, led to the emergence of nearshoring.

Many businesses over the years have opted for nearshoring solutions for their benefits which mainly include,

Lower Costs

Most companies face the challenge of increasing production costs. For instance, hiring a software development expert in the US can be costly due to the dollar rate and living costs. However, hiring experts in nearshore companies will lower labor costs, making it affordable.

Typically, countries offering nearshore services have lower wages due to the tax incentives they offer.

Flexibility

In today’s technologically advanced business landscape, meeting customer demands requires agility and flexibility. When you hire nearshore experts in your operations, it brings flexibility in meeting customer demands.

This is possible since the experts focus on only the specific services outsourced to them. Moreover, due to geographic proximity, it’s easier to respond to changes in customer preferences.

No Missed Deadlines or Incomplete Projects

Nearshoring presents the benefit of a shared time zone and geographical proximity. It allows managers to outsource time-bound projects to specific experts in nearshore companies preventing failed project outcomes.

Increased Efficiency

Nearshoring enhances efficiency in many companies. This is because the lower operating costs and an expected time zone allow managers to accomplish more by working around the clock since most operations are outsourced to nearshore experts within the same region.

For example, a software development company can outsource its cloud operations to a nearshore company to ensure customers’ demands and accessibility are efficiently met when required.

Enhanced Communication

Since businesses and nearshore experts enjoy proximity, they quickly communicate, collaborate, and share ideas on accomplishing a set goal. This improved communication results in better product or service quality and efficient processes.

Shared Time Zone

Shared times zone and proximity are undoubtedly the most significant benefits of nearshoring. When the nearshoring company and a local business share the same time zone, scheduling meetings with minimal or no time delays is much easier.

Managers can quickly set remote meetings with nearshore experts, maximizing operational efficiency.

Drawbacks of Nearshoring

The future of nearshoring looks bright, with more businesses turning to it for its benefits, particularly software development and cloud operations companies. However, like every other business solution, it presents some drawbacks, especially for companies that need help understanding the strategy.

A common drawback is identifying knowledgeable and expert nearshore companies fit for your operations. It may cause you to end up with mediocre or substandard services or incomplete projects.

While companies enjoy the same time zone with a minimal language barrier, cultural differences are another drawback. Considering holidays and the length of working days in the country, you are hiring nearshoring services is vital.

Nearshoring Vs. Offshoring

While nearshoring and offshoring are both forms of outsourcing, they have key differences that are vital to consider before deciding on the best option for your business. Onshoring is another outsourcing model to think about when looking for outside help. We compared them here.

Nearshoring is the transfer of business processes to companies in a nearby country. In most cases, the country where your company is located shares a border with a nearby country and is in a similar time zone. For instance, many US companies nearshore some of their operations to Mexico and South America.

Nearshoring will help you increase the size of your talent pool while still benefiting from accessible communication because of shared time zones.

Offshoring is hiring experts or moving part of your business operations to a service provider in a distant country – typically a country with different time zones and probably on a different continent. Businesses aim to reduce manufacturing or other operations costs by offshoring cheap labor from other countries.

According to Harvard Business Review authors Aron and Singh (1):

“Companies must treat offshoring as a strategic imperative if they wish to capture all its benefits. Offshoring initiatives that have cost savings as their raison d’être, our studies show, don’t allow companies to capture greater revenues from the market.”

– Harvard Business Review

Should you choose offshore or nearshore?

Both offshoring and nearshoring have their set of pros and cons. To help you choose the right one, you should carefully review each outsourcing type’s benefits and shortcomings. Also, consider your business needs and select the one that suits you. In addition, you should consider other factors like:

Cost-effectiveness: Cost reduction should be the primary consideration when choosing the best shore for your business. However, don’t compromise the quality of the service simply because the cost is lower.

Adaptability: With today’s fast-paced economy and ever-changing technologies, it’s vital to consider a business strategy easily adaptable to new technology. Check whether your offshore or nearshore team can handle and implement new technology.

Industry knowledge: The company or employees you outsource your business operations to should have the expertise and excellent general knowledge about your company and industry

How to Choose the Best Nearshore Company

Theoretically, the nearshoring definition can be easy to understand, but a skilled manager must pick the right company for you. As nearshoring grows and becomes more established, a common drawback is choosing the right company for your operations.

Most software development companies need to have in-house experts or adequate software engineers. In addition, hiring local developers can be costly, thus pushing a company to look for nearshore experts with affordable rates.

However, how do you choose or pick the best nearshoring company for your operations?

Consider the following factors and techniques.

Short List Potential Nearshoring Companies

As you plan to outsource to nearshore companies, ensure you begin by short-listing potential companies. It may be a hectic task but sift through the available options to provide the best nearshore development services.

You can check their website, blogs, current vacancies, client feedback, social media presence, certification and licenses, contact, and physical location. Also, consider asking for referrals from friends or approved agencies.

Location

When choosing a nearshoring company, the location is of utmost importance. It will determine developer rates and time zone and help you set a precise budget and operation costs.

Availability of Experts

While nearshore software developer companies may help you save on operation costs, it’s vital to consider the availability of talent and experts. Nearshore companies with a pool of skilled personnel can offer inexpensive labor and still help you achieve quality projects.

Experience

Is the nearshore software development company you want to hire a start-up or an established entity? Experience is a crucial factor and technique you must engage when choosing the right skillset for your services and projects.

Types of Businesses that Use Nearshoring

Nearshoring is becoming an increasingly common business strategy, and many companies are moving their projects or practices to a neighboring country. These practices could be software development, customer service, or manufacturing. A few examples of businesses that have implemented nearshoring include:

Whirlpool

Whirlpool is a multinational manufacturer and marketer of home appliances based in the US. In 1987, the company nearshored most of its operations to Mexico. The Mexican facility exports 80% of machines, including refrigerators, washing machines, and stoves, to the USA and Canada. In addition to Whirlpool, electronics companies like LG and Samsung have established nearshore manufacturing units in Mexico.

Boeing

Boeing is an American aerospace company that designs and manufactures airplanes, telecommunication equipment, satellites, rockets, and missiles. The company outsources its wiring operation to Safran – a French multinational company. Safran has been in Mexico for 25, and in 2020, it opened its new facility in Chihuahua, which produces 95% of all Boeing’s 787 Dreamliner wiring.

Toyota

Toyota is a Japanese automotive manufacturer with a presence all across the world. The company nearshored its production units in Thailand in 1996. Currently, it has three plants in the country. The company also has other manufacturing facilities in India, Indonesia, and many other nations.

In addition to Toyota, other automotive companies like Suzuki, Mitsubishi, and Tata Motors have nearshored their operations to Thailand.

Suitable industries for nearshoring

Some of the most suitable industries for nearshoring include:

Software Development IT Nearshoring

Software development nearshoring is relocating a company’s software development and IT-related tasks to a nearby country. Many American companies nearshore part of their IT and software development services to Latin America, with countries like Mexico, Brazil, and Argentina being the top priority.

Poland, Ukraine, and Romania are joint nearshoring software development and IT destinations in Eastern Europe. However, before choosing nearshoring, learn more about how nearshoring IT and software development services can help your business.

Call Center services

Many companies have moved their call center operations or customer support services to a nearby country. Companies like Uber and IBEX nearshore their businesses to Jamaica and Costa Rica. In addition, Amazon has nearshored its back-office work, engineering, software support, and customer care to Costa Rica.

Automobile Industry

Several automobile companies have moved their manufacturing processes to a neighboring country. Nearshoring in the automobile industry dates back to the mid-20s with Ford, and since then, other vehicle manufacturers like Nissan, Toyota, Volkswagen, and GM have followed suit (2). 

“Ninety percent of vehicles produced in Mexico are exported, with 76 percent destined for the United States.”

– Trade

Pharmaceutical Industry

Big pharma giants like Cardinal Health, Avail, Welch Allyn, and Gambro Avanti Mediclear have nearshored their manufacturing process in Mexico.

Nearshoring Software Development Solutions

Nearshoring software development solutions vary according to market demands and customer preferences. Most software development companies today are looking to scale up their services and clientele.

Many have turned to nearshore developers to meet the growing demand and to remain competitive. However, evaluating client needs and assessing your capacity to fulfill them is essential when looking for the best solutions.

Generally, as stated in Forbes (3),

“At some point, it makes sense for almost every business to outsource some portion of the information technology functions “

– Forbes

Regardless of the business size, the most common software development solutions include:

• Full Stack Software Development
• Front-End Software Development
• Back End Software Development
• Mobile Development
• Database Engineering
• DevOps Engineering
• Software Quality Assurance
• Software Development Project Management
• Cloud Services

While these are the most common software development solutions, many other diverse services are available to every business or organization in need.

As nearshoring developers continue offering skilled and affordable talent, a company that fully understands its potential will tap into the vast resources presented by these experts. As you plan to engage nearshoring services in software development, map out a project scope for your company, client, and future expectations. It will help you focus on relevant services and customer needs throughout your business operations.

References:

1. Companies must treat offshoring as a strategic imperative if they wish to capture all its benefits. Offshoring initiatives that have cost savings as their raison d’être, our studies show, don’t allow companies to capture greater revenues from the market. – Harvard Business Review Quote
   https://hbr.org/2005/12/getting-offshoring-right
2. Ninety percent of vehicles produced in Mexico are exported, with 76 percent destined for the United States. – Trade Quote
   https://www.trade.gov/country-commercial-guides/mexico-automotive-industry
3. At some point, it makes sense for almost every business to outsource some portion of the information technology functions – Forbes Quote
   https://www.forbes.com/sites/forbestechcouncil/2021/02/22/should-companies-consider-nearshore-software-outsourcing/?sh=48531d63748e