You probably have heard of onshoring and offshoring, but what about nearshoring? Companies often do offshoring, which means moving their business operations or processes to another country with lower labor costs. However, in recent years, there has been a growing trend towards a different business strategy, and that is nearshoring.
What Is Nearshoring?
Nearshoring is the middle ground between onshoring and offshoring. Instead of relocating your business processes overseas or back to your home country, you move them to nearby countries. One example is starting a tech company in the United States, but partnering with a development team in Mexico City.
The main difference between nearshoring and offshoring is the geographical and cultural proximity. Unlike offshoring, which might send work halfway around the world, nearshoring keeps things relatively close to home, which has its benefits.
The Pros of Nearshoring
Reduce labor costs
One major benefit of nearshoring is that it reduces labor costs. The costs of hiring workers, a team, and employees can be significantly lower when nearshoring your business processes or manufacturing to a nearby country. For example, U.S. companies can save 30-70% on labor costs by nearshoring to Latin America.
Geographic Proximity
Just like if your home is located closer to the city, it’s easier and less expensive to travel to the city compared to living in a rural area. Companies that nearshore their manufacturing operations to nearby countries can conduct more frequent quality control checks and respond to emergencies faster.
Cultural Proximity
Shared cultural values are important for business operations. Disparities in work ethics, communication styles, and risk tolerance may arise from cultural differences, and disrupt business operations. Nearshoring offers the potential shared cultural understanding, facilitates decision-making communication, and ensures your team works in unison towards the same goal.
Similar time zone
It can be inconvenient when offshoring to a distant country that shares a different time zone. It makes scheduling meetings and dealing with urgent matters difficult. When there is a crisis that needs to be handled promptly, the team you partnered with may be asleep which can lead to undesirable consequences. However, nearshoring can prevent all these troubles, allowing better communication and faster executions.
Considerations for nearshoring
Language and cultural differences
Although language and cultural differences are less significant, it can still present as one of the challenges to overcome. Similar to how different parts of a country may have slight variations in cultural values, beliefs, and language nuances can still lead to misunderstanding and poor communication.
Quality Control
Geographical proximity can reduce the risks of quality problems, but it won’t eliminate it. The country that you outsource to may not have the resources and skills to achieve the same quality standard. Apart from that, geographical factors can impact quality and supply chain. For example, outsourcing your apparel company to Bangladesh may face disruption caused by flooding.
Laws and regulations
The countries that you outsource to have different laws and regulations, and adhering to them is crucial to prevent fines, penalties, and legal action. They can complicate the future of your company and force you to seek alternative solutions.
Economical and political Instabilities
Many countries that you can nearshore to often have economic and political instabilities. These instabilities can have a detrimental impact on your business. If you want to enjoy the benefit of low labor costs, you need to take the risk and be willing to suffer the consequences or have a contingency plan to prepare for the worst.
Conclusion
Nearshoring, offshoring, and onshoring are all valid strategies in the digital age. Understanding its benefits and potential drawbacks it’s the key to helping you decide the best approach for your company.
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