Navigating the maze of offshore and nearshore outsourcing options can feel overwhelming. But, what’s your ultimate objective with outsourcing? Are you looking to optimize your supply chain, reduce back office costs, or grow your programming team? In this article, I’ll clarify for you the differences between offshore and nearshore outsourcing choices for you. Also, beyond just cost-effectiveness, I’ll highlight 10 more key factors for you to consider when selecting an outsourcing country and teaming up with a third-party service provider. So, let’s get started on determining the best outsourcing solution for your business!

Offshore, Inshore, Reshore, and Nearshore Outsourcing – What Does it All Mean?

First, offshoring, inshoring, reshoring, and nearshoring are all ways that organizations can outsource part of their business operations. To explain, below is a definition of outsourcing:

Outsourcing is the practice of obtaining goods or a service from an outside or foreign supplier, instead of from an internal source.

“… offshoring, inshoring, reshoring, and nearshoring are all ways that organizations can outsource …”

Businesses often outsource non-core processes to third-party companies to save money and improve service levels. Recently, the location of the supplier has become an important consideration. For decades, people have used the term “offshoring,” but now new sub-types of “shoring” have emerged to better describe the supplier’s geographic location. Here’s some definitions:

Offshoring is the practice of basing some of a company’s processes or services overseas, so as to take advantage of lower costs and in some cases to improve services. Traditionally, the offshore supplier is located in the far east or India where the labor pool is both highly skilled and less expensive.

Nearshoring is the practice of transferring a business operation to a nearby country, especially in preference to a more distant one.

Reshoring (or Inshoring) is the practice of transferring a business operation that was moved overseas back to the country from which it was originally relocated.

Here are 11 Decision Factors to Use When Comparing Offshoring vs Nearshoring Outsourcing.

For many decades offshoring was the way to go for outsourcing manufacturing, suppliers, non-core business processes as well as software development. Now due to recent developments, nearshoring or even reshoring are becoming more attractive. In fact, the key reasons for these changes include: 1) western countries deteriorating relationships with China and Russia and 2) the rising wages of other traditional offshore countries such as India. 

Below, you’ll find 11 key decision factors designed to help you in determining the most suitable approach for your next outsourcing project. Additionally, I have specified for each decision factor the type of outsourcing that is generally preferred.

1. Cost Affordability – Pro For Offshoring.

Offshore outsource locations will usually have lower labor and overhead costs which is a pro. Specifically, overhead costs can include facilities, equipment, etc.

2. Widest Choice of Qualified Vendors and Suppliers – Pro For Offshoring.

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For many goods and services there will be more choices with offshore outsourcing. Whereas nearshoring reduces your choices of talent and skilled professionals.

3. Culture Differences – Pro For Nearshoring.

Usually this is a big pro for nearshoring. This is because countries that are geographically close usually share similar cultures and languages. For example, African and Asian countries have significantly different cultures from western countries. Hence, nearshoring is a big pro for team building and collaboration resulting in high efficiency and more quality deliverables.

4. Same Time Zone – Pro For Nearshoring. 

Nearshore companies usually operate in the same time zone which facilitates real-time communication. So, it is easier to schedule meetings, solve problems faster, and keep projects on schedule with nearshoring. 

5. Flexibility / Scalability – Currently A Pro For Offshoring.

Offshoring has traditionally offered the most flexibility. This is because offshoring countries already have an extensive outsourcing capability in place. So this means you can easily add or reduce staff and services. However, now some nearshoring companies like Mexico are increasing their outsourcing capability. So for maximum flexibility, you need to evaluate the individual vendor and if the local country is business-friendly.

6. Length of Supply Chain – Pro For Nearshoring.

Nearshoring and shortening your supply chain is a big plus. If outsourcing involves manufacturing or supplier of key parts, nearshoring will shorten your supply chain. As a result, this will reduce your transportation costs as well as minimize supply chain disruptions.

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7. Strong Infrastructure – Pro For Nearshoring.

In most cases nearshore countries will have similar infrastructure as your country. However, you will need to evaluate the specifics of any country’s infrastructure. Especially, look at the internet, power, transportation networks, government services, and political stability for that specific locale. So this includes not just the facilities providing the outsourcing, but all the entire supply chain.

8. Around-the-Clock IT Support Services – Pro For Offshoring.

Offshoring can be a pro for outsourcing IT services that are transactional-oriented or for software maintenance support. Also, there are advantages to offshoring in the case of 24-hour operations. For example, an U.S. software services company using India technical support during off-hours.

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9. Knowledge And Business Process Outsourcing (KPO / BPO) Services – Pro For Nearshoring.

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Especially if two countries have similar cultures, nearshoring is a pro for Knowledge Process Outsourcing (KPO) such as market research, equity research, legal process management, education and publishing. Also, this goes the same for Business Process Outsourcing (BPO) such as data entry, customer care, finance and accounting, transcription, website services, HR support and payroll processing. 

10. Amount of Business Travel – Pro For Nearshoring.

 If there is a need for face-to-face meetings or on-site visits, nearshoring is a pro. Nearshore locations are usually located within two to three hours of flying time which saves time and productivity for key staff.

11. Higher Security and Easier Audits – Pro For Nearshoring.

Nearshore locations give you closer control of your intellectual property. In this case, you and your vendor would be subject to similar data protection laws. Also, this makes audits easier, negotiate contracts and enforce confidentiality.

For more information on offshore vs nearshore outsourcing, see eMorphis’ Offshoring, Inshoring, Outsourcing, and Nearshoring – All Explained, ClickIT Technology’s Nearshore vs Offshore Outsourcing, Krusche & Company’s Nearshore Outsourcing Explained, ROI CX Solutions’ Nearshore Outsourcing Benefits, Improving’s What is the Difference Between Nearshore, Offshore, and Onshore Outsourcing? And Managed OutSource Solutions’ What Is KPO? How Is It Different From BPO?

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For more articles from SC Tech Insights, see latest topics on Outsourcing, Information Technology, and Supply Chain.