Today we are going to cover the difference between nearshoring and offshoring and how either of these forms of outsourcing could be beneficial to your business. Some questions that you might be asking yourself right now could be: What are nearshoring and offshoring? What is the difference between the two? How is nearshoring or offshoring relevant to my business? Why would I try nearshoring or offshoring when I could just hire a new employee? Never fear, these questions will all be answered as we dive in to the discussion of nearshoring and offshoring.
What is Nearshoring?
First things first, let’s define the concepts that we will be talking about today. Nearshoring is simply just a subtype of outsourcing. Specifically, it is when a company utilizes another company within the same geographic area to complete a task, (deeper definition and examples provided here). Jonajo is actually a perfect example of nearshoring. We are a United States based company but many of our employees telecommute from Mexico. This style of working has major benefits for our company, like the ability to provide lower prices than if everyone lived in the U.S. without the timezone issues that are often faced when using traditional offshoring methods.
Benefits and Drawbacks
As mentioned, a huge appeal of nearshoring is that it can cut costs compared to hiring full time employees in more expensive areas. By utilizing nearshoring you are getting high quality employees at substantially lower costs. The adult literacy rate in Latin American and Caribbean countries is approximately 92% which is substantially higher than other outsourcing options such as India where the rate is approximately 63% (See full article here). Moreover, this benefit comes without the added hassle of arranging meetings and attempting to communicate with someone in a completely different time zone. With nearshoring you do not have to worry about scheduling meetings outside of work hours. This simple convenience can make all of the difference for your company’s communication. And, as I’m sure you know, efficient communication can make a world of difference for your productivity.
Another benefit of nearshoring is fewer cultural differences. When working with a country that is physically closer in proximity, the cultural differences are often much smaller. Imagine a company that is primarily based in Germany. If they were to nearshore to another European country, for example Poland, they would have far fewer cultural differences to account for than if they were to outsource to a country like China or India. For instance, they may be closer aligned on holiday dates, or generally recognized working practices.
What is Offshoring?
Offshoring is a type of outsourcing similar to nearshoring. In fact, the largest difference here is just in where the company that you choose to work with is located. In offshoring, you are outsourcing your company’s needs to workers who are outside of your country and likely outside of your continent (more details here). Similar to nearshoring, offshoring has significant benefits financially. Offshoring is known as being the most budget conscious outsourcing option. This wallet friendly option can also have the benefit of allowing your company to work around the clock. You and your employees are in alternate time zones allowing for service anytime, day or night.
Unfortunately, this budget conscious solution comes with some major drawbacks. For example, the different time zones will mean either working asynchronously or having meetings outside the traditional 9-5 hours of operation. This asynchronous working environment can lead to poor communication, making projects more difficult and more time consuming. Other communication barriers might arise simply in language. Working with individuals in different countries might also mean working with people who do not have the same primary language as you. On top of the already asynchronous communication you will have to work to overcome any language barriers that arise.
Additionally, there may be cultural differences that need to be accounted for. Differences in holiday schedules or general work practices could be a serious hurdle to consider. Finally, sheer physical distance could be a problem. If anything were to require your physical presence it would cost more time and money to travel to an offshore location compared to a nearshore location (see a simple table of these pros and cons here).
Which is better?
It is impossible for me to tell you whether nearshoring or offshoring is better for you and your company. Both options have merit and both have serious drawbacks. At Jonajo we have decided that nearshoring is the best option for us. It fits our needs and provides us with the high quality service that we strive for. But what is best for our company might be different than what is best for your company. It is up to you to weigh all pros and cons and make the best decision for yourself and your company. I hope this article has been helpful to you in making your decision.