Nearshoring is the outsourcing of business processes, especially information technology processes, to companies in a nearby country, often sharing a border with the target country. Both parties expect to benefit from one or more of the following dimensions of proximity: geographic, temporal (time zone), cultural, social, linguistic, economic, political, or historical linkages.
Nearshoring is a type of outsourcing where a given company seeks a development partner in a different country or region. However, what distinguishes nearshoring from other types of outsourcing is the fact that the development partner is still in close proximity. Since companies are usually in the same time zone, this facilitates communication and allows for frequent visits.
Overview
Offshoring involves relocating work to a foreign organization to reduce costs, but challenges include time differences, local labor laws, and reduced oversight. For example, a Western European IT company may outsource software development to India for its skilled, low-cost workforce, but the distance complicates management and increases risks like fraud and intellectual property theft. For example, Bulgaria is now considered to be a viable outsourcing destination for such companies as German software company SAP, where labor costs are low, and the skills available, but which is also closer to home.
In the USA, American clients nearshore to Canada or both, as well as to many other nations in Central and South America, like Argentina, Brazil, Costa Rica or Colombia, and the Caribbean, to the Dominican Republic, Guyana, Jamaica, and the U.S. Virgin Islands.
A popular type of nearshoring is in software development, with the main benefit being many skilled developers available at low cost. Call centers, shared services centers, and BPO (Business Process Outsourcing) are also common choices for nearshoring, as the value of offshore outsourcing hotbeds like Philippines lowers.
The complexity of offshoring stems from different languages and cultures, long distances and different time zones, spending more time and effort on establishing trust and long-term relationships, overriding communication barriers and activities of that kind. Many nearshore providers attempted to circumvent communication and project management barriers by developing new ways to align organizations. As a result, concepts such as remote insourcing were created to give clients more control in managing their own projects. Despite recent developments, nearshoring does not necessarily overcome all of the barriers, but the proximity allows more flexibility to align organizations.
Proficiency in the English language has become a sought-after skill as companies strive to capture a larger chunk of the US market. Universities, industry, and governments encourage the development of the language, so the hunt for skilled, English-speaking talent is slowly becoming easier.
Origins
The term "Near Shore" was trademarked by the Mexican IT firm Softtek in 1997, seeking to enter the U.S. market with a differentiated approach to outsourcing. This coincided with the rising demand for offshoring in the late 1990s, served primarily by established Indian IT vendors.
This new model established the firm as a near-shore alternative, Establishing rigorous quality standards also became essential to compete with traditional offshore providers, with Softtek demonstrating that high levels of process maturity, like CMMI Level 5 and Six Sigma certifications, were achievable outside of India. through its Near Shore model, Softtek bore much of the responsibility for educating the market on its benefits and distinctions from traditional offshoring. This challenge led to the development of the Total Cost of Engagement (TCE) model in 2005, a framework designed to assess not only direct costs but also the broader expenses associated with outsourcing, thus demonstrating the long-term value nearshoring could offer beyond hourly rates.
See also
- Co-sourcing
- Offshoring