Nearshoring is where an organisation transfer’s part of its business operations, specifically its manufacturing capability, to a nearby country closer to its product demand location. This is a practice that is gaining momentum in European countries as manufacturing goods in the parent countries becomes more expensive. The main reason for nearshoring in Europe is to transfer work to geographically closer and less expensive companies.
Nearshoring is a neighbouring country, or one on the same continent enables you to travel and conduct one-on-one meetings regularly, at a lower cost. It also helps you gain more control over your business by visiting often and keeping the team morale high by welcoming the development team to your headquarters. Furthermore, there is cultural compatibility, which reduces instances of misunderstanding and enables work coordination.
Nearshoring vs Outsourcing
Outsourcing is when a company hires another company to be in charge of a current or planned activity that could be done internally. Usually, this practice is undertaken as a cost-cutting measure. Also, a company may lack internal experts in certain areas, hence deciding to outsource the expertise to other companies. The most common business operations that are outsourced are software development, marketing, accountancy, and customer support.
Nearshoring vs Offshoring
Offshoring is the process of outsourcing business activities to companies whose economies are cheaper. This business strategy is among the most efficient cost optimisation techniques as it involves relocating business operations from costly countries to affordable or cheaper ones. A country in Europe can use countries like Malaysia, China, Brazil, Mexico, or an African country as an offshore destination.
Usually, it is more feasible to engage a nearshoring partner than gather a team on your own. Firstly, you may incur expenses in the recruitment process, such as posting a job advertisement and the time taken to conduct interviews.
Secondly, companies that provide nearshore services are located in countries that offer lower hourly wages, resulting in reduced costs for your project or company.
Thirdly, experts in specialised companies usually are better trained and educated; they can exchange experience with their counterparts to grow their qualifications and qualities.
A company that wants to apply cost optimisation techniques to its operations should consider offshoring as one of its options.
- Compatibility in Time Zones
Similar time zones enable internal and external teams to work together throughout the workday. This helps companies circumvent the delays and holdups that are often encountered when working with teams in a different time zone. Compatibility in time zones provides clients with an opportunity to respond to new requirements quickly, incorporate user feedback as it streams in, and course-correct immediately.
Besides working together or calling during regular hours, the proximity reduces travel costs and avoids long flights that can take up an entire workday. You can hop on a plane in the morning, meet with your team in the nearshore country and go back home in the evening.
- Common Values and Culture
You may think that differences in values and culture are insignificant. But, cultural differences can have a significant impact if your outsourcing country is far away. Some cultures take longer breaks or work at a less efficient or slower pace, disrupting the entire company’s functioning ability.
Nearshoring decreases these problems as a country neighbouring yours is likely to have almost, if not, similar values and culture to yours. This also is beneficial to the company and teams as behaviour is predictable.
For collaboration to succeed, there has to be effective communication. Interactions between team members are more comfortable as they happen in real-time. Sufficient knowledge of a common language enables clear understanding between parties and ensures the result of work concerning the expectations.
Diverse work ethics, for example, in an offshore situation, makes project-oriented cooperation difficult. Deadlines and work expectations can be interpreted differently, hierarchy systems can affect the speed of decision making, and eventually the implementation of the entire project. Although cultural differences are also found inside Europe, the collective understanding of efficient work requirements and professionalism is similar.
- Saves Energy and Time
A nearshoring company can begin work on your project within weeks, if not days. You will not have to incur the cost of recruiting and training your in-house team or waste time doing so. There is no need of forming a new department or team as the business activity was non-existence in the company before. Experts and the best specialists are picked by the company offering nearshore services, where a team is formed out of their in-house experts.
- Expansion of Pool Talent
Nearshoring can also be beneficial to companies as it allows them to find more experienced and qualified contractors, broadening their horizons. One of the most popular and eligible countries in nearshoring in Europe is Serbia. Serbia has a considerable number of experienced experts and specialists in specific professions and trades.
Problems Encountered with Nearshoring
Many of the problems involve errors in planning and failing to prepare this business model. Having this in mind, you should consider the following when searching for a nearshoring partner.
- Look for an excellent match to the business values and model. It can be challenging to find a reliable partner that creates a problem-free and smooth work process. However, working with a respectable and knowledgeable logistics partner will always be beneficial since you will obtain favourable results.
- Even though the nearshoring country may be close to yours, there may be variances in language and culture. This can be problematic with work hours, vacation time allowance, and holidays, especially where it involves two different religions.
- Data protection and confidentiality. While the European Union has the General Data Protection Regulation (GDPR), there is still a threat to data security when you contract a third party service provider. Before you start working with a nearshore vendor, you should ensure that you consider the kind of information you pass on to the nearshore company, that is, the data that is essential to your project and what should be kept confidential. It would be best to have some measures in place to safeguard sensitive information, such as IP, customer data, and revenue-generating insights.
Despite the many advantages of nearshoring, compared to other options, not all companies can succeed with the model. Use this list to establish if nearshoring is a viable option for your organisation.
- You advocate for reasonable hour-rates
- You anticipate dependable quality
- You are looking for passionate and experienced experts
- You do not negotiate on quality standards
- You have no time to waste on recruitment and training
- You know your target
- You need to work remotely, especially during this COVID-19 pandemic
- You want a team that can be available in real-time
- You want to extend an existing department or build a new one
- You want to save on costs
If all of these statements suit your company, then nearshoring is an excellent option for your company.
If you are searching for a collaboration that will be accessible at all times, your best bet is to engage a reliable nearshore vendor. This process should be well thought out and executed wisely for it to be beneficial. Nearshoring enables businesses to accept more work as they obtain a better deal on the more tedious tasks while letting important tasks remain in-house. Also, nearshoring always brings in higher quality work than what would be found in offshoring.
If you decide to go the nearshoring way, always research the company’s employee training processes and the country’s labour laws. Do not forget to establish if the nearshore company has solid intellectual property safety procedures.