Companies must find ways to cut costs while increasing efficiencies to remain competitive and relevant. Worldwide there has been a trend towards remote working. These factors have resulted in many companies exploring how they can benefit from offshoring and nearshoring. The reasons for deciding on one approach over the other vary. Do you understand the differences between these two strategic business approaches?
Offshoring vs Nearshoring
Offshoring and Nearshoring are both business strategies that companies engage in to accomplish tasks and projects more cost-effectively. However, they differ in how this transpires. This means that the associated advantages and potential risks also diverge.
What is the Meaning of Nearshoring?
Nearshoring is the practice of relocating business operations to a neighbouring country or a country within the immediate region. It is a strategic business decision designed to decrease costs and tap into the more cost-effective expertise in a foreign country. Examples of nearshoring processes are supply chain management, software development and user interface design. Nearshoring involves setting up a work centre for these processes.
3 Advantages of Nearshoring
- A cost-effective way of accessing more affordable expert services.
- Fewer cultural discrepancies and language barriers between company employees and employees in expanded operations.
- The logistical benefit of all a company’s operations, for example being in the same time zone. This better enables easy and quick communication between a company’s employees. It also makes in-person meetings more possible and less expensive.
Additionally, nearshoring locations are usually centralised in metropolitan areas. This gives the parent company the advantage of accessing good infrastructure, enabling faster expansion.
3 Possible Challenges of Nearshoring
- Dissimilar labour laws.
- Different holidays from home country.
- IT and related Security.
How to Overcome Nearshoring Challenges
The primary challenges of nearshoring are usually linked to legality and the practicality of rolling out. This means that having an in-country expert partner is the most cost-effective and efficient way to solve issues ahead of them transpiring. A reputable company, such as The Key Recruitment Group, which has a long record of working in the industry for over 40 years, is ideally positioned to assist you with this.
Some of the ways that Key Recruitment assists clients are by ensuring that all in-country laws, such as labour laws, are adhered to and by verifying the skills and competencies of those being hired. As well as supporting onboarding and payroll once staff are hired. Additionally, Key Recruitment can assist and advise on how to roll out operations to better ensure that logistical issues, such as IT and security concerns, are addressed upfront.
Companies that are Nearshoring
Nearshoring is an increasingly popular worldwide business strategy. It’s estimated that the demand for nearshoring services will grow by 8.9% between 2021 and 2027. Furthermore, research shows that in 2023, nearshoring is one of the top three global trends.
What is Offshoring?
Offshoring is a strategy by which a company grows its in-house capacity using out-of-country resources and personnel. This can create a competitive advantage through decreased business costs and access to high-calibre expertise at a lower employment cost. Offshoring also enables a company to have operations outside its home country over a longer term. Thereby, expanding and upscaling existing business operations with the intention of ongoing use of these established resources.
What are the Advantages of Offshoring?
The inherent advantage of adopting an offshore strategy is that it has little restriction on location. Thus, a company can expand to anywhere that maximises advantages for them.
There are several very appealing advantages of offshoring to South Africa. According to the latest Ryan Strategic Advisory review, 2022, South Africa (tied with India) is the most favoured offshore delivery point worldwide. Furthermore, South Africa has a large pool of highly qualified and skilled, English-proficient personnel. Historically offshoring to South Africa has resulted in Key Recruitment’s clients reaping a cost saving of between 30-60%.
How does Offshoring differ from Nearshoring?
Both Offshoring and Nearshoring involve accessing resources in a country other than where a company is based. In both cases, this usually relates to establishing a technical service or administrative work centre. Thus, companies that choose these strategies expand their business operations by increasing their own company in-house operations.
The primary difference between offshoring and nearshoring is the choice of location and therefore proximity to the company’s home country.
An offshoring location is usually selected for strategic business and cost advantages as related to the specific processes at hand. Thus, while the location may come into the equation, it is not a key consideration when selecting where to offshore. This means that companies consider possible offshoring locations worldwide. A common challenge with an offshoring strategy is time zones. Depending on the offshore locations in-house meetings can be more complicated to arrange and communication more staggered. Additionally, if required, in-person meetings are costly due to the offshore location possibly being far away from the parent company.
In contrast, nearshoring deliberates the location of the country being expanded into ahead of settling on a site. Therefore, a nearshoring strategy will consider only countries within the same or nearby regions. Nearshoring thus solves issues, like differing time zones, that can complicate the practical workings of an offshore strategy. And assists in limiting the expenses of, for example, in-person meetings.
How to Decide if You Want to Nearshore or Offshore?
The easiest way to weigh up which option is best suited to your company’s needs is to have a consultation with an expert nearshoring and offshoring company. Key Recruitment offers a free consultation. This enables our potential clients to discuss what they need and how they need it. We then establish what bespoke services we can offer that will best meet their requirements. Thereafter, we assist our clients to set up in-country operations from brick-and-mortar furnished offices to recruitment and payroll. Contact us today to set up your consultation with our experts.