What is nearshoring, onshoring, offshoring and outsourcing?
Nearshoring involves hiring nearby third-party services for cost efficiency and convenience, different from onshoring, offshoring, and broader outsourcing, benefiting from similar time zones, easier communication, and cultural alignment.
Nearshoring is a business approach that involves third-party offering services from a completely different geographic area, comparatively closer to the company’s location. Nearshore takes place when a company chooses to transfer a portion of its work to a company or a group of companies that are less expensive and lie geographically nearer.
The nearshoring definition can be elaborated with an example. Suppose you own a consulting firm in Italy. You need to automate some processes within the company or provide online solutions. Your project needs a robust team of developers with a strong base of IT knowledge. Unfortunately, you do not have such a team at your disposal.
One of your company partners brings in the news that there is a company in France that is well-known for dealing with such projects. You get in touch with the company immediately. After some discussions and meetings, you start collaborating with the company. This implies that you have taken the first step towards nearshoring.
To comprehend the nearshoring meaning in a better way, it is important to draw a clear comparison between nearshoring and other business approaches. This will help you in understanding how it is different from onshoring, offshoring and outsourcing.
Nearshoring and onshoring
Onshoring happens when a company outsources its work to another city within the same country. By using such a business approach, companies can avoid the risks related to foreign taxing policies and cultural differences. Instead, this leads to investments that strengthen the economy of the country. However, at times, onshoring involves dealing with expensive price ranges as compared to other options.
Nearshoring and offshoring
Offshoring refers to the transfer of business activities to countries that have relatively cheaper economies. Companies use this business approach to relocate their activities from expensive to cheaper countries. Offshore outsourcing is the least expensive outsourcing option. However, companies using such an approach might face obstacles related to experience differences, cultural differences, time differences, language, tax and legal issues.
Nearshoring and outsourcing
Outsourcing is a broad concept. It involves onshoring, offshoring and nearshoring. It is a kind of agreement where a company enlists another company that stands responsible for an existing or a planned activity that might take place within the organization. Companies generally undertake outsourcing as a cost-reducing measure.
When should you choose nearshoring?
Having a thorough knowledge about the benefits of nearshoring would help you in finding out the true nearshoring meaning:
Time and energy saving
Nearshoring does not require you to invest time, money and energy in educating and recruiting in-house employees. You also do not need to form a new department. The nearshoring company that you have chosen would concentrate solely on working on the tasks you have defined. The best minds would be involved in getting your projects completed on time.
Nearshoring is less expensive
If you do not want to use the business approach of nearshoring, then chances are that you might end up spending a lot of money on posting advertisements. Also, companies that provide nearshore teams are mostly located in countries that have lower hourly wage rates. This leads to a decrease in the cost of your project. Again, experts who are a part of specialized companies, are generally better skilled and more trained.
Having the same time zone
One of the greatest benefits of nearshoring is that it lets you work in the same time zone. When your company and the one assisting you in your project, work in the same time zone, it leads to a more efficient, productive and stable workforce. Resultantly, more volume of work gets completed in lesser time. In the case of the nearshoring model, travelling from one place to another becomes simpler.
Hassle-free communication and easy understanding
Communication is the backbone of successful and effective collaboration. Nearshoring allows increased interactions between the team members in real-time. Having a common language benefits both parties and ensures clear communication without any misunderstandings arising from misinterpretations. Similar work ethics also help in making the project better and the collaboration fruitful.
Companies that require individual developers or experts helping them with particular projects or business operations, generally go for nearshoring the most. Also, companies that focus on creating new opportunities for their employees and concentrate on the smooth operation of their internal business, mostly choose nearshoring.
Nearsourcing or outsourcing?
Technically speaking, nearshoring refers to the outsourcing of business operations and processes to companies located nearby. It helps limit cultural differences, encourage easy communication and cutting down expenses.
Outsourcing, on the other hand, includes the hand-over of operational activities to expert suppliers. This aims at shortening the supply chain with a decrease in the services that are supplied internally.
Choosing nearshoring can reap many benefits for your company only if you know the situations during which you can opt for it. Nearshoring is recommended in situations when you need to extend or create a new department, you have to work remotely, you are looking for ways to cut the company costs, or you are trying to find experienced and skilled experts to help you out.
You can also use this business approach when you wish to avoid hiring, you want the supporting team to be ready for you in real-time, and you are comfortable with the fair hourly wage rates.
Outsourcing can be an excellent option when you need to cut down your costs and improve the condition of the back-office operations. You can also choose to outsource so that you can make the most of the available time in doing what you do best.
You can find more time to focus on the important aspects of your business only when you outsource the departments that lie beyond your core competencies. Go for outsourcing without any second thought when your company is growing at an impressive scale. Lastly, outsourcing is very helpful when you need to prioritize and get involved in meaningful work. Outsourcing providers are ready to help you with all those things that will keep your business growing.
If you need a partner in software development, we're here to help you.
We will respond to your enquiry within 24 hours.