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What is nearshoring: Defining the future of nearshore outsourcing

Nearshoring is the process of offloading responsibilities and jobs to countries near your geographic location.

Rather than hiring workers in other faraway countries, nearshoring allows companies to outsource their workload to neighboring countries. This strategy also allows for more flexibility and stability for the country involved in the nearshoring model.

Companies choose to cooperate with nearshoring companies if offshoring or traditional outsourcing is not on their radar.

While this type of outsourcing overlaps with those business models, there are certain benefits and advantages that outsourcing and offshoring can’t provide.

Nearshoring vs. Offshoring

While nearshore outsourcing is hiring for services in adjacent nations, offshore entails employing or contracting services in distant nations.

These choices contrast sharply with onshore outsourcing, which essentially entails hiring or contracting services from someone outside the firm but still located inside the home country.

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For example, corporations in the United States may outsource nearshore to Canada and Mexico.

Complete offshore outsourcing might take place in Asian nations such as India or the Philippines, South America, Argentina, Brazil, or Eastern Europe.

Some businesses relocate their operations to totally other continents to widen their talent pool. Offshoring, on the other hand, may create a cultural discrepancies between the outsourced team.

Advantages of nearshore outsourcing

There are many benefits of nearshoring that only company that outsource nearshore can provide to clients and partners.

Generally, the benefits of nearshoring will give clients the same benefits as offshoring. This includes inexpensive labor from professionals, expert opinions, fast turnaround times, and more.

Some of the other benefits a company may receive from a nearshore partner are:

  • Higher quality team
  • Access to global supply
  • Quality control
  • Better software development
  • Skilled workers

Keep in mind that the business models accompanied by nearshoring are cultivated to save resources without letting the quality of services and products suffer.

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Access to a neighboring country’s talents

In the USA, companies often nearshore their employees—both salaried and hourly—to neighboring countries in South and Latin America.

Countries like Mexico, Cuba, Colombia, and Peru are hotspots for American employers looking for experts for varying sectors.

On the other hand, European countries rarely go out of the continent to outsource. Western countries nearshore jobs and responsibilities to their eastern counterparts.

There’s no doubt that the distance between the service provider and their clients influence how they both grow in terms of revenue and development.

Geographically closer nations promote information dissemination, and closeness to knowledge sources improves economic actors’ performance.

Advantages of nearshore outsourcing

Access to a neighboring country’s talents

In the USA, companies often nearshore their employees—both salaried and hourly—to neighboring countries in South and Latin America. Countries like Mexico, Cuba, Colombia, and Peru are hotspots for American employers looking for experts for varying sectors.

On the other hand, European countries rarely go out of their continent to outsource. Western countries nearshore jobs and responsibilities to their eastern counterparts.

There’s no doubt that the close proximity of the service provider and their clients influence how they both grow in terms of revenue and development.

Lower labor costs

Outsourcing nearshore can be more cost-effective based on the location and kind of task, however, this is not always the case.

Outsourcing nearshore software development, for example, is a significantly more specialized talent, and hence labor costs may be higher.

In Mexico, a day of work amounts anywhere from 7.16 USD to 10.78 USD.

While this minimum wage may look too low for seasoned professionals, keep in mind that Mexico is a developing country. This means that their living expenses are much less expensive than that of a developed country.

For some American and Canadian outsourcing companies, nearshoring to Mexico is better than offshoring to India or the Philippines since the time-zone differences aren’t that drastic.

In addition, if the company wants to visit their nearshoring team, the travel to and for isn’t that costly and time-consuming because of its closer proximity.

Less cultural shock and fewer language barriers

There’s no doubt that neighboring countries would already be familiar with the local customs and culture.

Nations with close proximity to predominantly English-speaking territories are more likely to be as fluent as native speakers. For instance, they require Mexican university students to take English classes to finish their degrees.

Most, if not all, multinational companies and businesses need English-speaking candidates and employees, especially if they are conversing with clients and customers.

Overlapping time zones

Time zones are one of the main reasons why most third-party business process outsourcing companies catering to the Americas and Europe assign graveyard shifts.

This is significant in business because they enable companies to tailor their schedules to the time zone in which they operate.

Setting a partner to the same time zone makes trade easy since business hours coincide.

Time orientation can differ depending on cultural differences.

A nation that places an importance of time difference aside from other Latin American countries like Mexico city are more likely to schedule their daily activities around strict time limits during business operations.

When nearshoring, the workforce management and team leaders can eliminate the need to give out overnight shifts to their employees.

Overlapping work hours with the parent company is important, as all businesses are conducted within their day. It gives both parties the opportunity to synchronize their most productive hours throughout the day.

Advantages of nearshore outsourcing

3 foolproof ways to succeed in nearshoring

Thinking about nearshoring? Have you done your research yet?

Fail-proofing and making backup plans from B to Z aren’t easy—especially if you’d rather spend your time and effort running a business. However, these business models aren’t a one-stop solution for all issues.

A company outsourcing a nearshore is a venture that involves effort and time on all fronts. Making sure that you’re making the right decisions is part of your job as a decision-maker and a leader.

Aligning mission, vision, and core values

It’s important to align these factors with your chosen external service provider. Preserving the company’s culture while moving forward is important.

Aligning the company culture gives the impression that the company, while in the process of change, is still capable of taking care of its values throughout the entire process.

They put these values into place so employees and bosses alike can operate and work on the same spectrum.

Abandoning these will be deeply problematic and may cause a sudden dip in productivity, or worse, a loss in trusted employees.

Identifying competencies

Make sure that your service provider is competent in whatever niche or field of work you’re in.

You don’t want to partner with a nearshoring company that can’t deliver the work you’re expecting.

Look for certifications, qualifications, and ask for requirements. This is the best time to examine the firm and research further into what they are best in.

Compromising for differences

If the nearshore company passes 90% of the requirements you’ve asked them for, make sure to consider the other 10%.

Can they make up for the 10%? Is the rest of it important, and will it affect your company?

Sometimes, the 10% isn’t that bad: maybe their headquarters aren’t in the same time zone you’d hope for. But sometimes, that 10% is a major issue; maybe they cut corners to meet deadlines.

3 foolproof ways to succeed in nearshoring

Managing a nearshore outsourcing team

To manage a nearshoring team is to practice patience and perseverance as a leader.

If you’re not used to talking to a team or governing a project, maybe it’s time for you to learn and pick up a couple more skills.

While for others, leadership—no matter how scattered the team is—comes naturally.

Natural-born leaders still need to hone their skills and adapt to any changing environment.

Remember that there’s no harm in learning new things.

Keeping in touch

With all the communication tools right on the tip of our fingers, it’s not that hard to send a message anymore.

Keeping in touch with a nearshoring team is easier than you think, especially if the time zones overlap and they are operating within the same hours as you. There should be zero to minimal delays in replying, except if it’s the weekend, a holiday, or after working hours.

But this doesn’t mean that you should reserve messages for work purposes. Make it a habit to ask everyone on the team about their lives outside of work.

Humanizing the workplace leads to a better and more empowered workforce.

Open communication

Communication is a two-way street, but that doesn’t mean that miscommunication can’t be avoided.

What we can do, as professionals, is to practice empathy and vocalize our concerns and questions early on. There’s no harm in asking questions, especially when almost everyone is distributed outside the country.

Managing a nearshoring team is just like handling an in-house group. The only difference is most of the meetings and communication are done online rather than in person.

Reinforcing accountability in the workplace

There are a lot of project management tools and accountability apps out in the market right now. Use these to sync with your team, making projects and deadlines easier to handle and manage.

Most departments use tools like Asana and Trello in companies that handle major projects and tight deadlines.

Allowing everyone to see stats and contribute updates and outputs is a surefire way to reinforce accountability within the department.

Cooldowns

Weekly cooldowns that have nothing to do with work are one way to bond with the team.

If you’re running along with a blended department—a mix of in-house employees and nearshoring workers—cooldown sessions are a great time to catch up with everyone.

By doing so, everyone will feel valued and included, thus creating camaraderie within the group. Time and time again, happy employees make up a successful company.

Nearshore outsourcing countries

Listed below are the top three territories that are known to nearshore with each other.

In fact, there is a Free Trade Agreement between Mexico, Canada, and the US that is renewable every 16 years.

However, keep in mind that their practice isn’t the “benchmark” for outsourcing a nearshore.

A European and an Asian country can nearshore and still surpass the growth and development that these three have.

The US and Canada

One benefit of nearshoring in Canada is that they have tax incentives for Canadian companies that hire foreigners. Another one would be the proximity of some Canadian provinces to American states.

Cross-border trades and labor are encouraged by the governing officials.

Nearshore outsourcing countries

The US and Mexico

As mentioned earlier, the wages in Mexico are much lower than in the US. Their living expenses are lower as well, somewhat balancing out the salary Mexican employees get.

Mexico-based nearshoring companies often operate and overlap with the US-based companies to ensure minimal delays in production and communication.

This way, employees are still connected to the clients within their preferred hours.

Eastern, Northern, and Western Europe

Western Europe, along with its northern counterpart, is considered a powerhouse for the biggest names in the European market.

Eastern Europe is known for its booming tech industry, where many experts and professionals in tech are practicing and living in the cities of Ukraine and Poland.

Together, these sectors of Europe work together to nearshoring jobs and roles within the same continent.

How nearshoring helps the economy

Nearshoring helps to produce quality products and services without ever going over the pond. There are incentives that governments can put in place just to keep businesses onshore or nearshore.

Economies of these countries are studied and researched, as companies are prioritizing reshoring and nearshoring rather than their counterparts.

This practice minimizes the cultural and language barriers and geographical gaps. It can be the future of international trade.

Nearshoring also allows firms to transfer work to a nearby country providing more convenience in a location that provides cost benefits.

There are also nearshoring destinations are fewer time zone differences, less cultural discrepancies, and a better level of influence over decision-making processes.

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About Derek Gallimore

Derek Gallimore has been in business for 20 years, outsourcing for over eight years, and has been living in Manila (the heart of global outsourcing) since 2014. Derek is the founder and CEO of Outsource Accelerator, and is regarded as a leading expert on all things outsourcing.