Nearshoring vs. Offshoring: Choosing the Right Outsourcing Destination

Hiring a third-party team makes financial sense. You can acquire a team of competent and skilled individuals without slogging through dozens of interviews. Once the project ends, you can simply part ways with that team without messy layoffs or perpetual overhead.

Local outsourcing is costly, so many companies choose between nearshore and offshore business process outsourcing (BPO).

How do these two types of BPO differ? Which best fits your organization: nearshoring vs. offshoring? 

This article explores their definitions, pros and cons, and real-world examples. It also shares tips for deciding between the two strategies.

What Is Nearshore Outsourcing?

As its name suggests, nearshore outsourcing serves as a middle ground between offshoring and onshoring. This approach entails enlisting the services of an outsourcing provider located in a nearby country or geographical vicinity. Businesses employing this strategy entrust specific processes or even entire departments to an external team in a neighboring country with similar time zones.

For instance, an illustration of nearshoring involves a U.S.-based company outsourcing its operations to a service provider in Mexico or Costa Rica. The distinguishing factor between nearshoring and offshoring is that the client and the vendor are situated in different countries within the same region, typically with only a one- or two-hour time difference between them.

Sometimes, BPO vendors may have offices within your home country, while their nearshore teams operate in neighboring nations. As a result, nearshore outsourcing offers the advantage of collaborating with providers who understand your culture and language, all while tapping into a broader talent pool and cost-effective labor resources.

Situations Where Nearshore Outsourcing Is Beneficial

Nearshoring makes more sense in certain situations than offshoring. Here are some common instances when you might have to choose nearshore outsourcing:

• You must complete a task or undertaking that calls for expertise not widely available in the country.
• You need to comply with strict regulations.
• Close communication and collaboration are a must.
• You want to create a long-term partnership.

Examples of Successful Nearshore Outsourcing Ventures

Several brands have outsourced their operations to nearby countries. Let us look at a few popular ones:

• Inditex, the parent company of apparel company Zara, is based in Spain and outsources 10% of its production to nearby countries, Morocco and Turkey.
• Whirlpool, an American home appliance manufacturer, established a nearshore manufacturing unit in Mexico.
• Boeing, an aerospace company in the U.S., started outsourcing its aircraft wiring plant to Mexico in 2010.
• IBEX and Uber use nearshore outsourcing for call centers and customer service.
• Amazon outsources back-office work, software support, customer service, and engineering to Costa Rica.

What Is Offshore Outsourcing?

Offshore outsourcing involves contracting out your business operations to BPO providers in geographically distant countries, often spanning multiple time zones. Sometimes, companies even transfer specific functions to continents entirely remote from their own.

For instance, an illustrative scenario of offshore outsourcing would be engaging a software development team in the Philippines when your company’s headquarters are based in Chicago.

The distinction between nearshoring and offshoring lies in the flexibility to hire an offshore team from virtually anywhere, facilitated by cloud-based BPO solutions. An emerging trend sees an increasing number of companies forsaking physical office spaces in favor of distributed teams, aligning with the growing prevalence of remote work in mainstream business practices.

Situations Where Offshore Outsourcing Is Beneficial

Offshoring is an excellent option if you do not want to invest additional funds in developing full-time employees. Instead, you can fill open positions by hiring a third-party agency that charges an hourly rate to keep costs minimal. 

Here are some situations where offshoring makes more sense.

• You need to reduce costs.
• You need time to focus on critical business operations.
• The company is growing fast.
• Your daily work hours are not enough to strategize.

Examples of Successful Offshore Outsourcing Ventures

The offshore segment, which accounted for a larger BPO revenue share in 2022, is expected to grow considerably from 2023 to 2027. IT offshoring has been the biggest driver behind the sector’s growth. Below are examples of companies that use offshore outsourcing:

• Messaging platform WhatsApp moved its software development to Eastern Europe.
• Lyft, a U.S.-based ride-sharing company, outsources information technology (IT) functions to Eastern Europe.
• People.ai, based in San Francisco, also outsources to Ukraine to tap into skilled artificial intelligence (AI) developers.
• AT&T, a popular American telecom company, outsources its call center to the Philippines.

Pros and Cons of Nearshoring vs. Offshoring

When your current staff cannot handle your workload, you have two options: nearshoring or offshoring. Both are reasonable solutions and offer a different set of benefits.

Companies have second thoughts about outsourcing, but as tech spending increases by 5.1% in 2023, tapping into new developments remains a viable solution.

Nearshoring is a better way to dip your foot in the water than offshoring. However, offshoring provides the most cost savings and greater flexibility. Let us explore their differences with the table below.

Practical Advice on Choosing Between Nearshoring and Offshoring

Ask yourself, “What is BPO for me?” What goals do you want to achieve, and which compromises are you willing to make? Here are three tips to consider when choosing between nearshoring and offshoring.

Consider Specific Goals and Needs

Each type of BPO has its strengths and weaknesses. Your unique goals and needs determine the best approach for you.

Offshoring is for you if you want to cut down on your spending and access a much larger talent pool. You also leverage time zone differences to operate around the clock, but you might need to deal with cultural and linguistic differences. If you do not want to encounter such problems, nearshoring offers similar benefits without the issues of traditional offshoring.

Take the Budget Into Account

How much are you willing to spend? If you are budget-conscious, then offshoring is your best bet. The service provider is in a distant location with low labor costs. Still, nearshoring can save money by minimizing the need for international travel and in-person meetings.

Identify Which Compromises to Take

Each outsourcing solution comes with unique compromises. Your needs and the effectiveness or efficiency of your workflow determine which ones you are willing to accept.

With offshoring, you risk encountering bigger linguistic and cultural differences while sacrificing more control over the function. However, you get the most out of your money while enjoying a wider talent pool.

Alternatively, working with a nearshore partner offers the best of both worlds; it is cost-effective and has fewer cultural and language barriers.

Tips for Acing Business Process Outsourcing

Outsourcing is a challenging feat. Here are six tips to ace your next outsourcing venture:

• Be clear with your needs and non-negotiable features.
• Regardless of the location you choose, you must be familiar with the different BPO pricing models to fully maximize the financial benefits of outsourcing.
• Ask the potential provider for a project proposal.
• Scan the collected information and measure it against the qualities you need.
• Take time to vet vendors and verify the quality of their proposals.
• Check whether the potential hire offers valuable insights into the tasks.

The Bottom Line

You might have thought that distance was the only difference between nearshoring and offshoring. As you can see, the two strategies are very different and have unique benefits. Discovering the best arrangement for your business depends on your requirements, your goals, and the time you set aside to meet them.

Unity Communications offers both nearshore and offshore outsourcing solutions. Want to discover which is best for your organization? Contact us, and let’s connect!