Onshoring vs Nearshoring vs Offshoring – Which one is right for your business?

There’s no denying that the trend for outsourcing dominates the contemporary business landscape. According to Statista, In 2017 the global outsourcing market amounted to 88.9 billion U.S. dollars (https://www.statista.com/statistics/189788/global-outsourcing-market-size/).

Outsourcing simply means an agreement in which one organization delegates its internal activities to a different company. It can be a business process or an operation function – the most essential feature of outsourcing is that businesses can get the job done using fewer resources.

But outsourcing is a broad term that can take on many different forms. In this article, we take a closer look at three of them: offshoring, nearshoring, and onshoring to help you decide which of these outsourcing options will bring the most benefits to your suitableness.

Onshoring

Onshoring means that the company to which you delegate tasks is located in the same country as your headquarters. In its essence, on shoring means hiring an external professional located nearby to help you get a job done. A large enterprise hiring KPMG to manage their financial books is an example of onshoring.

Pros

  • You take advantage of professional services delivered in similar or identical working culture for optimal collaboration.
  • There is no language barrier between you and the provider, reducing the risk of miscommunication.
  • You work in similar or identical time zones.
  • Business travel is quick and cost-effective.
  • You can be sure that the contractor is familiar with standards and trends in your country.

Cons

  • Onshoring brings small to none cost reduction in the processes you’re outsourcing – you’ll see it already when getting your RFP answered.

Offshoring

Offshoring means that your organization delegates a process or non-core functionality to a company located in a distant country. Offshoring is dominated by Asian countries such as India, China, Malaysia, and the Philippines that offer access to low-cost labor and professionals with adequate skill sets. An organization that hires a Chinese factory to manufacture batteries is an example of offshoring.

Pros

  • It reduces process costs dramatically, bringing significant savings.
  • You can develop a 24-hour work cycle.
  • The pathway to hiring companies in distant countries is well-developed, and the hiring process is straightforward.

Cons

  • Time zone disparity has a negative impact on productivity, collaboration, and employee retention.
  • You’re dealing with professionals who come from an entirely different culture and have their local holidays, work styles and other customs that might interfere with the processes at your organization.
  • Communication with professionals who aren’t proficient in English can be problematic.
  • Geographical distance makes it hard to arrange business travel.
  • The country might not have an optimal infrastructure to ensure continuous service delivery (for example, frequent power outages).
  • Offshoring might require investment in the training of the local workforce.

Nearshoring

Another form of outsourcing is nearshoring. It’s a perfect solution for organizations that want to optimize costs but aren’t willing to manage the risks that come with offshoring. Nearshoring means hiring an external provider located nearby in a neighboring country or another location where English is a standard communication medium, and working culture is similar. A German software company hiring a Polish development team is an example of nearshoring.

Pros

  • Significant cost reduction.
  • You’re working in similar or identical time zones, so real-time collaboration is possible.
  • You can easily communicate with your nearshoring partner because most of the time they will speak your language and share your values.
  • Local culture and customs are similar to yours.
  • Business travel is easy to arrange and inexpensive.

Cons

  • Working culture and the variable infrastructure might be a little different in selected cases, so it’s worth asking the provider about this already at the level of RFI.

Now that you know what onshoring, offshoring, and nearshoring can offer you, it’s time to consider your needs.

Here’s what you need to remember when hiring an external contractor to cover one of your processes:

  • Focus on the skills and experience of the company.
  • Consider their track record – check client testimonials, ask people who have worked with the company.
  • Make sure that the provider offers high-quality workspace and equipment to help their employees deliver your tasks with top quality.
  • Double check that the company’s management is supportive and approachable.
  • Don’t choose the cheapest provider – analyze what you’re paying for to reap the cost benefits of outsourcing.

We hope you find this guide helpful in making a decision about outsourcing your company processes. Have you got any questions about outsourcing? Share your thoughts and experiences in comments to start a conversation about the pros and cons of various outsourcing methods.

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