Business owners and managers of companies are familiar with the term. Still, it can be challenging to differentiate it from the outsourcing, onshoring, and offshoring; the concepts are quite similar but different at the same time. While nearshoring has significant benefits compared to other ways of doing business, it is vital to check if it’s a good fit for your company. If it is, your company can benefit from using this approach right away.
What is Nearshoring?
Nearshoring is an approach to business when a third-party company provides specific services from another geographic location, which is relatively close to the company’s area.
Nearshoring happens when an organization decides to transfer work to companies that are less expensive and geographically closer.
For example, you are the business owner or manager of a consulting firm in the Netherlands. You would like to automate certain processes inside the company or offer online solutions. This project requires in-depth IT knowledge and a team of developers that you don’t have in-house. Through your friends or partners, you have heard about the company in Poland that has a good reputation for handling such projects and has a team of developers available for your project. After a few conversations, discovery calls, interviews, and meetings, you have decided to collaborate with this company. Congratulations, you just started IT nearshoring!
Comparison of nearshoring with other business approaches
So, to nearshore is to transfer one or more of your business operations to a nearby country. The next question is, how is it different from outsourcing, offshoring, and onshoring. Let’s explain each of them and give an example of each based on our consultancy business case.
Outsourcing is a broader term. Nearshoring, offshoring, and onshoring are all types of outsourcing. Outsourcing is an agreement in which one company hires another company to be responsible for a planned or existing activity that is or could be done internally.
Outsourcing is a practice usually undertaken by companies as a cost-cutting measure. Also, the lack of knowledge in certain areas of expertise and the lack of in-house specialists can be the reason for outsourcing these activities to other companies. Often business operations as customer support, accountancy, marketing, and software development are outsourced.
In our Dutch consultancy firm example, they lack knowledge and specialists in the IT field, so they decide to outsource it. Without the advice of a trusted person, they have a few options to choose from: find a software development company or freelancer in the Netherlands (onshoring), in one of the neighbouring countries i.e East Europe (nearshoring), or in any other country in the world excluding those mentioned before (offshore outsourcing).
Onshoring is basically outsourcing to another city in your country. Using this approach, companies don’t face the risks of cultural differences or foreign taxing policies, not to mention they invest in their country’s economy. But, they often have to deal with a higher price range comparing to other outsourcing options.
Suppose our consultancy company based in Amsterdam. In that case, it can consider working with an IT company outside the Randstad area; because the wages there are substantially lower than in the urbanized Randstad area.
Offshoring is outsourcing business activities to countries with cheaper economies.
Offshoring takes advantage of cost differentials—companies using offshoring relocating their business activities from costly countries to cheaper ones.
For the Netherlands, offshoring destinations could be Asia (India, China, and Malaysia), Latin America with Mexico and Brazil, and some African countries.
Offshore outsourcing is considered the cheapest outsourcing option, which is the most significant advantage of this model. However, companies can encounter other challenges working with offshore parties as time differences, cultural differences, experience differences, language, legal and tax issues, distance, etc.
Let’s imagine that our consultancy company from the Netherlands has decided to work with India’s software development company. They made this choice as the hourly rates of the developers were the lowest. But, they forgot to count the total cost of ownership (TCO) of the ready digital product, which is one of the most important metrics to consider while choosing an IT party to work with. They could not take into account the time difference of 3,5 hours that may disturb instant communication and, as a result, delay the development process. And cultural and language obstacles and different business ethics and approaches to work could be barriers to a successful collaboration with an offshore company.
With the nearshore outsourcing, you can still profit from the lower price compared to the onshore model, and, at the same time, avoid the barriers and difficulties described above.
Advantages of nearshore outsourcing
It saves time and energy
A nearshore company can start working on your tasks within weeks, sometimes even days. You are not wasting time and money on recruiting and educating your in-house employees. There is no need to form a new department as the business activity was not present in your company before. The best specialists are chosen for you by the company providing nearshore services, and the team is formed from their in-house specialists.
Nearshore teams are an excellent option to help you scale up or scale down on-demand.
It is cost-efficient
In most cases, it is far more feasible to work with a nearshore partner rather than gathering a team of your own. Firstly, the costs mentioned above are the expenses connected to the recruitment process (job post advertisement and hours of work spent on the interviews). Second, the companies providing nearshore teams are based in the countries with lower hourly wages, which results in a reduction of costs for your company or project. Third, specialists in specialized companies are usually better educated and trained; they have the opportunity to exchange experience with their peers and grow their qualities and qualifications.
Working in the same time zone
One of the most substantial advantages of the nearshore business model, as opposed to offshore, is the time zone. Working in the same time zones leads to a more stable and productive workforce and, as a result of it - an expansion of work volume. Also, travelling between locations is far more simple and common under the nearshore model.
In our nearshore example to Poland, there are several flights a day available from the Netherlands to Poland, with the duration of the trip around 2 hours.
Easy communication and understanding
Communication is the key to successful collaboration. Team members’ interactions are made much more comfortable as they are happening in real-time. Good knowledge of a common language means no language barriers, a clear understanding between parties, and ensuring the result of work regarding the expectations.
Different work ethics in an offshore model makes project-oriented collaboration difficult. Work expectations, deadlines can be interpreted differently. Also, diversity in hierarchy systems can influence decision-making speed and, therefore, on the execution of the whole project. While cultural differences also exist inside Europe, the common understanding of professionalism and efficient work requirements is pretty much alike.
Checklist “ Is nearshoring for you?”
Even though nearshoring has many advantages comparing to other business models, not all companies can benefit from it equally. Check this list to see if nearshore outsourcing is the right choice for your business.
You need to build a new department or extend the existing one
You get to use to the remote way of working (I hope we all are after the COVID- 19)
You expect to save costs
You know what you are aiming for
You expect consistent quality
You don’t compromise quality standards
You are searching for experienced passionate specialists
You don’t want to waste time on hiring
You want your team available in real-time
You are for the fair hour-rates
If you found yourself (the company you represent) in all these statements - nearshore outsourcing is an excellent opportunity for your business.
Don’t waste your time and contact the nearshoring company to grow your business.
For IT services, contact Amsterdam Standard. With headquarters in Amsterdam and 3 offices in Poland (Krakow, Rzeszow, Wroclaw), we have been building dedicated nearshore teams for our customers since 2011. We provide individual developers in a variety of languages, development teams, and extended teams to our clients. We will enable you and your colleagues to focus on growth. Instead of continuously searching for new developers, you can focus on new opportunities. We are here to help!