What are the Advantages of Nearshore and Offshore Outsourcing?
December 28, 2019
In an effort to drive profits, businesses must constantly seek new avenues to improve cost savings and optimize. One of the primary ways that many companies find competitive cost advantages involves nearshoring or offshoring parts of their operation to external professionals with skilled expertise.
Naturally, you may wonder what the difference is in nearshoring vs. offshoring. Below, we’ll discuss some development outsourcing examples and then dive into the offshore outsourcing advantages when manufacturing in Mexico. So, keep reading to discover more!
What is Nearshoring?
Nearshoring is a form of outsourcing wherein an organization makes the decision to pass on processes or operations to another company that has its own talent pool of skilled workers, and is relatively close (geographically speaking). For example, in the UK, Europe is considered a nearshoring region, or in the U.S., Mexico and Canada might be thought of as nearshoring. The time zone continuity and lack of major cultural differences grant a business increased control over every aspect of their business in the designated market. According to Process Flows:
When choosing this model, businesses move operations or functions to a “close” but more cost-effective location, with small time- zone differences and fewer cultural discrepancies. Proximity allows for less expensive travel, a greater degree of control and timely decision-making in critical situations. Nearshoring countries are often bound by similar financial and legal constraints that provide social and economic stability within a region.
Benefits of nearshoring include:
- Lower costs
- Increased efficiencies and access to more resources
- Concentration on core competencies via specialization
- Relatively similar time zones and cultures
- Reduced likelihood of IP theft
What is Offshoring Outsourcing?
Wondering what is offshoring and outsourcing? In Layman’s terms, it’s the relocation of a company’s processes to a further location outside of your own country’s borders, which will typically have lower labor wages and reduced production and manufacturing costs. For the states, examples would typically include places like factories in China or India. These offshoring destinations provide several competitive advantages but can have significant costs attached as well. Forbes writes:
The ultimate means to save a significant amount of money is to combine offshoring with outsourcing. That is move production to a third-party that is based in an overseas location. This has been an activity in which American corporations have been engaged for many decades.
Taking such a step is often required for a business to compete with other industry market leaders since it generally provides a host of cost-savings advantages, especially when the offshore service in performed in Mexico.
Nearshore & Offshore Outsourcing Advantages
For Americans, whether Mexico could be considered a nearshore or offshore country is relatively nebulous. Its geographical proximity to a large portion of the states and shared time zones make it appear to be a nearshoring opportunity; whereas the differences in language, culture, and laws would suggest that it falls into the offshoring category. Regardless, before you consider making such a move, it’d be wise to consider the pros and cons of offshoring vs outsourcing in Mexico.
Typical benefits include:
- Cost benefits – Seeing as wages are lower in Mexico, typically around $2.70/hour, investment dollars not only buy more skilled labor hours but can be focused on other development processes as well.
- Large pool of low-cost talent – When the average cost of labor is low, even the most highly skilled employees are relatively inexpensive. Mexico has made a concerted effort to train and educate its workforce in all aspects of manufacturing work from creating managers, to laborers, to foremen. Although you may be able to find some workers in the states that are more skilled, such people would likely cost ten times as much.
- Time zone advantages – Communication is made easier due to the fact that both parties operate under similar work hours. For East Coast companies, the time difference would be no different than that of the West Coast.
- Reduced supply lines – Compared to offshoring in places such as China or India, doing so in Mexico decreases freight and transportation costs and ensures that customers receive their goods faster.
When you offshore/nearshore in Mexico, many of the typical disadvantages of offshoring are minimized. That said, two of the factors that could have a somewhat negative impact include:
- Language Barriers – Again, this is a smaller problem due to the fact that many Americans speak Spanish and vice versa. That said, the language difference could create communication problems.
- Cultural differences – Mexico has different laws, governmental regulation, holidays, etc. Work and quality expectations may also be dissimilar from one country to another, which makes it somewhat challenging to set performance standards that align with the overall strategy.
Nearshoring in Mexico
Today, if you’re looking for ways to optimize productions, nearshoring in Mexico is likely the best option available to you. There, you are granted access to a large, low-cost talent pool of highly skilled workers. Amongst other benefits of offshoring, this allows you to focus resources on what you do best.
Are you thinking about making a move south of the border? If so, NAPS is here to help. We’ve worked with hundreds of other businesses to successfully move a part of, or their entire operations to this nearshoring mecca.