Top 7 Benefits and Advantages of Nearshoring for Your Business

Frequently Asked Questions About Top 7 Advantages of Nearshoring for Your Business

So, what is Nearshoring?

Generally, nearshoring is when a business outsources its operations to partners in a neighboring country (https://sonatafy.com/how-do-you-define-nearshoring-and-its-benefits/). Usually, the two companies’ countries share a common border. Nearshoring is one of the best and most effective ways of growing your business and increasing its resilience, especially in the post-pandemic era. It allows start-up and established companies to move their operations to a more economical location. This translates to less language, time, and cultural alignment, a wider talent pool, and greater control in operation and decision-making processes. Usually, most American organizations nearshore their business operations to Mexico and Canada, among other Latin American countries (1).

“Mexico, in particular, has attracted the attention of different companies around the world because of certain conditions inherent to it, mainly its proximity to the United States; the benefits of free trade agreements signed by Mexico, particularly the modernized United States-Mexico-Canada Agreement (USMCA); and low labor costs, among others.”

– Holland and Knight

Why Nearshoring? – The Benefits of Nearshoring Your Business Operations

The business world is changing incredibly fast, with new challenges arising daily. Modern businesses must do much more to keep up with these rapid changes. Consequently, nearshore outsourcing AKA “nearshoring” has become a perfect choice. It became more popular during the Covid-19 pandemic when remote opportunities and operations became normal. This outsourcing model is your ideal choice for businesses that want to maintain or increase their competitive advantage, especially in complex processes such as software development. Forbes Magazines claims nearshoring is important in the digital era (2):

“This is because agile development provides the framework for rapid iterations and constant adaptation, depending on what customers want. Nearshoring and agile development are joined at the hip. This is because having a partner located in a nearshore location, rather than offshore, means you can practice real agile — with real-time communication, rather than a modified version of it.”

– Forbes

Reduced Costs by outsourcing

One of the top nearshoring advantages is cost efficiency, helping you save more money for more critical business operations. When operating with remote resources, companies can keep on-premise overheads. After all, you no longer need to deal with brick-and-mortar costs. Besides, there can be significant differences in operational and labor costs depending on the same country you are outsourcing. For example, a US-based software development expert earns an average salary of $76526. On the other hand, a software developer in Latin America earns an annual salary of approximately $24100. It would be best for a US-based digital marketing and software company to move its operations and developments to Latin America and other countries with less expensive labor costs.

Similar Culture, Language, and Time Zones

Cultural and language barriers can cause significant obstacles that might be hard to overcome. Well, nearshoring is the perfect option for the avoidance of language barriers. You can easily find a team sharing a similar language and cultural background with your business team members. Since you will be conversing with a team that speaks and understands your native language, there will be no cases of miscommunication, legal dilemmas, and delays. For instance, Central Europe is one of the most common nearshoring destinations, as many developers here speak perfect English. This makes it easy for professional teams to manage international projects with accessible and exceptional communication.

Since the nearshore destination has close geographical proximity and a similar time zone to your region, there are usually fewer cultural and time differences. This makes it easier for you to connect, communicate and collaborate with the outsourced team. After all, streamlined communication is a crucial factor when handling any business.

Better Access and Control by outsourcing

With offshore outsourcing, you can quickly lose control over your organization and its operations, missing out on the benefits and potential opportunities. This is because your outsourced partner is miles away, giving you limited access to them. It is even more complicated when you are not familiar with the culture and language of your outsourcing country. On the other hand, with nearshoring, you are geographically closer to your team and a short flight away. This gives you absolute control over your business projects and operations. You will be working with local resources with a clear understanding and utmost respect for your business needs and goals. Besides, they can communicate effectively with you and others, delivering a competitive advantage.

Access to an Extended Talent Pool

Let us get this out of the way: Only some countries have great experts, especially in the technological industry. In that case, outsourcing your business operations to another country will solve this problem. Nearshoring gives unlimited access to a large pool of talents and new, advanced technologies. You will therefore experience a sufficient skilled labor force in your company.

For instance, Latin America has made its mark in IT. It is hailed as one of the most popular destinations for outsourcing technical services such as software development. This explains why numerous tech companies in the United States have outsourced IT experts from Latin America to manage their projects instead of hiring in-house teams.

Expansion into New Markets

Another benefit of nearshoring is that it makes expanding your business into new markets easy. Even better, you can do this without sending teams from your home county into the new market. This translates to reduced costs and new, better growth opportunities. Additionally, you will better understand the country’s cultural practices and apply the knowledge to grow and expand your business. While nearshoring might seem a little expensive initially, it guarantees better results and saves you money.

Similar Legalities

Intellectual property (IP) laws are crucial in software development. Fortunately, your outsourcing team is geographically close and is more likely to understand the rules governing your country. Therefore, you will not be in any legal predicaments that could impact your project’s launch.

Expedient Integration

By nearshoring, you are moving your operations to a country where people have a similar language and culture. Therefore, you do not have to wait too long before your team integrates with your project operations. In other words, they can quickly adapt and deliver incredible performances within a short while. However, ensure that your nearshore team has the same (if not better) technical capabilities as your in-house team. This will translate into a more helpful alliance.

Disadvantages Of Nearshoring Software Development

Sure, nearshoring your business operations to a nearby country is gaining popularity, given the numerous nearshoring advantages. It is a more efficient, effective, and economical way of getting things done. But even with the many benefits of several nearshoring, disadvantages must be considered. These include:

High Initial Cost for custom software

While nearshoring comes lower than onshoring, its initial costs are still slightly higher than offshoring. If you are going for nearshore outsourcing, consider expanding your budget a little more in the beginning to finance all project requirements (3).

“Everything considered although nearshoring does fall short on certain aspects, it has many more advantages that mitigate them. This makes this type of outsourcing quite favorable for many companies in today’s busy market.”

– Jonajo Consulting

Fewer Choices

Compared to other outsourcing options, nearshoring offers few opportunities. You will be limited to several countries and companies with qualified contractors providing the services your business requires.

Cultural Affinity

Nearshoring offers cultural similarities and compatibility. However, other cultural nuances and other factors to consider, such as holidays, might impact your business operations.

How to Find the Right Nearshore Software Company

If you are looking for a nearshore company to outsource your software and other IT projects and tasks, choose one that perfectly fits your needs. You need a trustworthy partner that guarantees quality services and ensures that projects are timely completed with no challenges. Here is how to evaluate your outsourcing partner and factors to consider when choosing a nearshoring company include the following:

Expertise: Go for professional companies that meet your needs and complete your projects on time.

Communication: Communication is the key to running a successful business. Your nearshore software and IT company should be able to connect you with experts who can communicate with you regularly and in a language you both understand.

Scalability: Your nearshore company should offer you the scalability to manage your many tasks and projects.

Nearshoring Vs. Offshoring- What is Your Best Option’?

What is Offshoring?

Offshoring involves moving your business operations (or a section of your processes) to a different country, usually several miles and time zones away. It is also possible for companies to hire offshore teams with no particular physical location. Remote working has become more mainstream. As such, many companies have given up their offices, opting to organize distributed teams worldwide. For instance, a US-based software development company can hire a tech team from Bangalore, India.

Pros of Offshoring

Cost is one of the significant benefits of offshoring. Generally, most companies choose to offshore to cut down operational costs. They do so by offshoring their services to countries with low manufacturing, shipping, and cheaper labor costs. Some common offshoring destinations include China and India, where labor is considerably low.

There is an advantage of working in different time zones. If your business offers 24-hour customer support, hiring an external team whose working hours are opposite your in-house team’s working hours can make sense. This is a perfect way of ensuring support coverage without hiring a night-shift team.

Offshoring gives you access to incredible talent in the global pool. This means that your options are wider than teams that reside close by. This is especially helpful if your business or project requires advanced skills you need help finding everywhere (4).

“Access to specialized skill sets: In addition to cost benefits, offshoring can provide access to specialized skill sets that may not be available in the company’s home country. Whether a business needs expertise in a particular technology or industry, it is often easier and more cost-effective to find the right talent offshore rather than trying to develop it internally.”

– Study

Cons Of Offshoring

Culture, communication, and language barrier

When outsourcing your services to a different country, you want to assume that every team member understands and speaks fluently as a second language. Communication and collaboration might become challenging if they speak a different language.

Proximity and Time Zone Differences

One of the significant offshoring disadvantages is time zone differences. Usually, offshoring companies work in a 5-12-hour difference with their customers. This means you need to adjust your schedule for the sake of your offshore partner. Besides, visiting and organizing face-to-face meetings with your offshore team might be challenging, given the distance, travel time, and cost. Something to keep in mind when considering the time zone difference (5):

“It’s important to have at least a fewshared work hoursfor your in-house and offshore teams. Set two to three-hour slots during the day when both teams can collaborate on work.”

– Time Doctor

Social and Cultural Differences

Sure, language barriers can be minimized and even overcome. However, your offshore team can have social and cultural practices you need to accommodate. For instance, if you are offshoring your business partner from India, you should consider at least sixteen holidays, depending on their location. You must therefore pay attention to the effects of a fragmented calendar that can impact your project and its deadline.

So, which is the Best Option Between Nearshoring and Offshoring?

There are several differences between nearshoring and offshoring besides distance. The best way to go depends on your business goals and needs. After all, in this modern digital world, you want to hire agents who best understand and meet your needs and offer the utmost value despite their location. There is a reason why nearshoring has gained massive traction with many companies. This option provides the cost-saving advantages of offshoring without the numerous drawbacks.

Wrapping Up

Nearshoring software development services help businesses attain higher economies of scale and better specialization opportunities. This makes it easy for companies to focus on their core competencies. Nearshoring offers incredible opportunities and perspectives for software development and technology companies. You can have better control over your business, convenient access, flexibility, and language and cultural compatibility if you choose nearshoring as your primary outsourcing option. It one of the many types of outsourcing business models available (more detailed info here). However, the only way to achieve these advantages is to partner with a contractor that understands and values your business needs and goals.

References:

1. Mexico, in particular, has attracted the attention of different companies around the world because of certain conditions inherent to it, mainly its proximity to the United States; the benefits of free trade agreements signed by Mexico, particularly the modernized United States-Mexico-Canada Agreement (USMCA); and low labor costs, among others. – Holland and Knight Quote
   https://www.hklaw.com/en/insights/publications/2023/02/nearshoring-opportunities-in-mexico-appeal-to-us-china-asia
2. This is because agile development provides the framework for rapid iterations and constant adaptation, depending on what customers want. Nearshoring and agile development are joined at the hip. This is because having a partner located in a nearshore location, rather than offshore, means you can practice real agile — with real-time communication, rather than a modified version of it. – Forbes Quote
   https://www.forbes.com/sites/forbestechcouncil/2019/05/13/why-nearshoring-is-so-important-in-a-time-of-digital-disruption-and-transformation/?sh=2b6a24e34373
3. Everything considered although nearshoring does fall short on certain aspects, it has many more advantages that mitigate them. This makes this type of outsourcing quite favorable for many companies in today’s busy market.” – Jonajo Consulting Quote
   https://blog.jonajo.com/posts/pros-and-cons-of-nearshoring/
4. Access to specialized skill sets: In addition to cost benefits, offshoring can provide access to specialized skill sets that may not be available in the company’s home country. Whether a business needs expertise in a particular technology or industry, it is often easier and more cost-effective to find the right talent offshore rather than trying to develop it internally. –Study Quote
   https://study.com/academy/lesson/what-is-offshoring-definition-advantages-disadvantages.html
5. It’s important to have at least a fewshared work hoursfor your in-house and offshore teams. Set two to three-hour slots during the day when both teams can collaborate on work. – Time Doctor Quote
   https://www.timedoctor.com/blog/disadvantages-of-offshoring/