The Rise of Nearshoring—a good outsource model for your organization?

In recent years, three outsourcing models have emerged: 

Offshoring to distant locations
Insource (or keeping the work at home)
Nearshoring (a compromise solution)—this model is increasingly offering a more competitive and attractive alternative to the other two offshoring models.

Nearshoring is simply “outsourcing” or offshoring to an offshore location that is much closer to home.  In other words, rather than a USA based company outsourcing work to a provider or shared services operation located in India or the Philippines, nearshoring would be the same company outsourcing the work to a provider or shared services operation located somewhere in Latin America or Canada.

The Benefits of Proximity.  The key benefits provided by nearshoring are all related to the proximity of the nearshore destination to the home country and these potential benefits may include:

1. Cultural Proximity inevitably brings cultural and linguistic similarities. The USA for example, has a huge Spanish speaking community and many Latin Americans have relatives in the USA. Hence, it makes sense to nearshore work, especially contact center work for the Spanish speaking community, to a location south of the border.

2. Economic Proximity and historical ties also lead to close economic ties. The rise of free trade agreements such as NAFTA (which was originally created to benefit the agricultural and manufacturing sectors) inevitably bring the same benefits to companies who decide to nearshore a portion of their work to countries covered by such agreements. Furthermore, nearshoring inevitably leads to an indirect increase in trade and business in general between the source and destination countries; thus, a win-win situation for all.

3. Political Close economic ties may also be followed by close political ties. The European Union (EU) is both an economic and a political union and hence, companies in Western European countries who nearshore to locations in Central or Eastern Europe will find familiar regulatory regimes along with friendly political environments in which to operate in. Moreover, both the EU and NAFTA offer flexible visa and other arrangements for professionals from member countries to move across borders for long periods of time. Furthermore, with intellectual property (IP) protection increasingly a critical concern, nearshoring to an EU or NAFTA member country is generally less risky as these countries have strong IP protection measures in place and these measures are generally enforced.

4. Geographic Proximity will likely mean being only a few time zones away. Hence, this will make the critical interaction necessary between all the parties involved all the more easier (and no 3 a.m. meetings).

5. Cost Furthermore, less distance means that face to face interaction is less expensive and time consuming as time is not wasted traveling from the home country to the offshore location. This inevitably leads to more face to face interaction between all critical parties necessary to make an outsourcing arrangement viable. Likewise, the inevitably additional costs (sometimes, as in the case of the Philippines, mandated by law) associated with hiring workers to work night shifts or odd hours is largely eliminated.

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