Nearshoring, Making Your Business COVID-19 Resilient
August 20, 2020
Nearshoring can be a great way to increase your business resilience, especially in the post-COVID-19 world. In this article, we will take a look at the different types of outsourcing that exist, the pros and cons of nearshoring, as well as how to choose the best nearshoring partner for your business.
Outsourcing involves using a third-party on a contract basis to take care of a specific project or department within a company.
This can mean a few different things. You could be employing freelancers or even vendors who work with freelancers. This is generally a much more affordable way of doing business. Still, you do lose some control over that project or area of the business, meaning the results can sometimes be hit-or-miss.
Outsourcing has proven to be an effective model for companies looking to save on overhead and labour costs while improving efficiency. It is a model that can be scaled while still giving companies the option to adjust their resource distribution as necessary. Outsourcing can also improve productivity and give businesses the chance to focus on their core products and competencies.
Most companies choose to outsource in one of two ways: nearshoring and offshoring.
Nearshoring is the outsourcing of business processes, especially information technology processes, to another company in a nearby country. Most often, the two companies’ countries will share a border.
Using nearshoring enables businesses to move their operations to a closer, more cost-effective location. This close proximity allows for fewer time zone differences, cultural discrepancies, and a greater level of control in decision-making processes.
Offshoring is the same thing as nearshoring, without the third-party being in close proximity. This means a business will build a development team that functions independently, anywhere in the world.
This can potentially involve a time difference. However, it gets rid of the risks of hiring short-term contractors. It also means businesses can pick and choose their developers, with no geographical limits. They work with your in-house team, collaborate on projects, and develop software consistently.
Onshoring is the transfer of your business processes, software development, or projects, to a contractor within another region of your own country. If your company is based in a big or expensive city, then building a team in a less expensive nearby town can keep your expenses a bit lower.
Recent outsourcing trends
Increasing globalisation and technological advancements have led to a very strong outsourcing sector. The way companies work has radically changed as a result. The benefits of outsourcing have been used by businesses in an incredible variety of and are allowing companies to stand out from the crowd and thrive within an already competitive market.
Here are a few of the most recent trends in the outsourcing sector:
- The worldwide market size of the outsourcing sector rose to $92.5 billion in 2019. This is predicted to grow to $105.5 billion before 2025.
- Over 35% of small businesses are actively making use of an outsourcing provider. A 2019 Clutch report showed that 64% of business executives have an outsourcing partner for their software application development. More than 50% use IT outsourcing specialists to take care of their organization’s application and software maintenance.
- More technical responsibilities are being outsourced to third-party companies or contractors who can provide the expertise and guidance necessary. SMEs use outsourcing providers for IT services (37%), accounting functions (37%), and digital marketing responsibilities (34%).
- Data privacy and cybersecurity are of particular interest to executives when executives decide to outsource. By 2021, cybercrime and data breach damages have been estimated to cost companies overall more than $6 trillion in losses. As such, 78% of organizations are outsourcing to limit the risks and losses during their cloud transformation journey and to actively monitor data and security protocols.
- Outsourcing contracts are more focused on value and outcomes over price.
- There are plenty of different development opportunities for cloud-managed service providers. Outsourcing teams are in high demand across most industries which are looking to navigate through complex cloud application and infrastructure services. Market revenue from cloud-managed service providers is expected to reach $300 billion by 2021.
The pros of nearshoring
Nearshoring has become more and more popular recently. Many companies are starting to prefer using the services of other companies in close geographical proximity. Nearshoring enables businesses to avoid cultural learning curves and language barriers. It also has the benefit of reduced travelling costs.
There are many benefits to nearshoring. It can reduce expenses and guarantee better controls, leading to better quality products. With nearshoring, you can also have access to higher-skilled workers and lower labour costs.
To resume, here are some of the key benefits of nearshoring:
- Nearshoring allows businesses to cut costs.
- It allows companies to find top expert knowledge otherwise unavailable in their own area.
- Nearshoring allows entrepreneurs to build partnerships with other entrepreneurs who share the same language and culture.
- Travelling distances, times, and costs are generally far lesser.
- Depending on the region you are in, such as the European Union, there will be specific data protection laws which companies must conform to.
The cons of nearshoring
Of course, nearshoring also presents some challenges. Nearshoring will generally incur a higher cost than offshoring would. It can also take a while to identify a reliable nearshoring partner that understands all the ins and outs of your business processes. There might also be fewer language barriers. However, cultural differences can still be present, such as holidays and the length of workdays.
It is important to remain mindful of these challenges and to conscientiously with your nearshoring partner to enable a smooth transition. Here are a few questions to consider:
- Could there be any delays incurred?
- Would the disruption of operations and transportation incur any additional costs?
- Are there any regulations or laws that would need to be considered?
- Are there any cultural differences to bear in mind?
- Will the nearshoring partner be able to meet your own standards?
Nearshoring vs. offshoring
Offshoring is generally a lot less expensive than working with a third-party company that is local or in a nearby country. This is due to economic situations that allow offshoring companies to set lower hourly rates. However, offshoring does have trade-offs.
Due to the remoteness of an offshoring partner, travel can be a lot trickier, thus potentially impeding the effectiveness of the work being done. Maintaining regular and quality contact across different time zones is also a challenge. Language barriers and cultural differences can also have a negative impact on the working relationship.
Choosing the right partner
Choosing the right nearshoring partner is a real challenge for companies, especially for the ones that have never considered outsourcing in the past.
It is hard to decide who to trust with your project, time and money. Although there is not a single answer to what the right nearshoring partner is, there are a few things that can guide you to the best decision. Generally, a trustworthy partner should complete the conditions that most matter to you.
This means your ideal nearshoring partner should:
- Have teams of qualified, dedicated, and trained experts able to understand your needs and handle your projects.
- Be financially stable
- Be fluent in your language
- Have experience in projects or services similar to the ones you are considering outsourcing.
- Provide support once the work is done, even if for a limited amount of time.
- Have a proven track record with previous similar clients.
- Have trustworthy references that can give you an idea of the experience other clients have had.
- Be compatible culturally with your business and employees
- Possess quality technologies and infrastructure, which will allow them to improve performance and the quality of services you receive.
- Understand the objectives of your business and help you achieve them.
It will be up to you to determine which of these points matter the most to you and then choose your nearshoring partner accordingly.
For whom is nearshoring relevant?
Maintaining a successful business has never been easy. Especially nowadays, there is most often a lot more supply than there is demand. That is why businesses are always competing with each other for the top spot. Luckily for entrepreneurs, there are plenty of opportunities to make their work a bit easier. One of those opportunities is a nearshoring model of outsourcing.
Many companies outsource to get access to specialized skills and produce products more quickly. Other reasons companies outsource is if businesses need to act quickly on a market opportunity but don’t have the in-house talent to do so.
Nearshoring has many advantages. Even so, it definitely will not benefit all companies in the same way. Have a read through this list to find out if nearshoring is the right choice for your company:
- You expect to save costs
- You need to develop a new department or grow an existing one
- You have clear-set goals
- You expect consistent quality and don’t compromise
- You are searching for highly-qualified experts
- You want your team available in real-time
- You don’t want to waste time on hiring
- You support fair hourly rates
How COVID-19 has affected nearshoring activities
One component of nearshoring is the ability to travel shorter distances to visit business partners.
Of course, with COVID-19, governments have put many travelling restrictions into place. This means entrepreneurs have not been able to have face-to-face meetings with their partners. Especially at the start of any partnerships, in-person interaction is always preferable.
Nevertheless, many companies have been able to quickly adapt to the changes through online meetings, seminars and other online communications channels.
COVID-19 has also had a huge impact on previously long-held beliefs and mentalities.
For example, it has long been considered that physical proximity was necessary to conduct effective operations. However, COVID-19 has demonstrated that regardless of employee locations, it is possible to adapt and maintain efficient operations. A consequence of this could be increased employee flexibility, access to a larger talent pool and the possibility to deploy the workforce more flexibly.
Other potential benefits of the changes brought on by COVID-19 are more effective and greater diversity of delivery models across services increased readiness and flexibility to change processes to increase resilience, more agile processes and reduced need for physical workplaces.
How CONNECTS can help members looking into nearshoring
Companies looking into nearshoring as part of their business strategy can thus use CONNECTS to discover potential partners in all confidence. CONNECTS is a digital Business Matchmaking Platform that allows entrepreneurs to initiate trustworthy business opportunities worldwide.
Entrepreneurs wanting to find a specific type of service in a certain nearby region can do so using filters within the platform.
Furthermore, in a post-COVID-19 world where one cannot travel and meet people face-to-face anymore, CONNECTS allows entrepreneurs interested in nearshoring to find new businesses which are verified and trustworthy. Strong business relationships can only be developed through trusted networks. Chambers of Commerce vet and approve all their members.
This means each and every company on CONNECTS meets the high standards set by the Chambers. Nearshoring can thus be done in all confidence.
If you are interested in finding a nearshoring partner, you might be interested in reading about some of the various networks you can access using CONNECTS, such as the different Chambers of Commerce in Belgium, the Camara de Comercio de Barranquilla, and the British Chamber of Commerce in Belgium. You can also learn more about Business Continuity Planning and how outsourcing can boost business resilience.
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