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Nearshoring: Definition, key benefits, and why you should get started

March 18, 2022

If you’re looking to improve your supply chain resilience and streamline business operations like sourcing, customer support, and logistics, nearshoring could potentially deliver many benefits.

What is nearshoring?

Nearshoring is the process of hiring a nearshoring team or nearshoring company to provide specific services to your business from another location, usually a nearby country.


There are numerous reasons you might want to explore the possibility of finding a nearshoring partner, which we’ll explore when we look at the potential benefits and advantages of nearshoring.


Nearshoring: A working example

Imagine you’re an apparel company based in Poland, and you’re exploring the feasibility of supply chain digital transformation.


Your initial investigations have highlighted that you will need a software development team but that hiring to bring such talent in-house could be expensive. You then identify several IT companies and service providers in neighbouring countries in Eastern Europe who can provide the services you need at a lower cost than creating an in-house team.


After meeting the business owners at a handful of development companies, you entrust one with your supply chain digital transformation and managing the tech you rely on to power your supply chain.


You just started collaborating with your first nearshoring partner!


Is what you’re doing really nearshoring?

Deciding to embrace nearshoring may herald a significant shift in your business model.


Understanding the differences and similarities between nearshoring and other similar concepts that you may use within specific supply chain nodes will help you choose the right path and workflow for your business needs.


Outsourcing

Outsourcing is a broad term that you can use to describe all of these concepts. Essentially, anything that you hire someone else to do because you lack in-house expertise or are looking to benefit from cost savings is outsourcing.


In addition to nearshoring - or nearshore outsourcing - you might also consider onshore outsourcing (onshoring) and offshore outsourcing models (offshoring).


Onshoring

Onshoring is when you outsource work to another location in your own country.


To re-use our example of the apparel company in Poland, if your company headquarters was in Warsaw, but you were outsourcing work to a team in Wroclaw, this would be onshoring.


Offshoring

Theoretically, offshoring means outsourcing work anywhere that isn’t onshore or nearshore. However, the term is more typically used to describe the outsourcing of work to lower-cost destinations.


For example, if our Polish apparel company decided to outsource its IT development processes to India and split its manufacturing between China and Latin American countries like Mexico and Brazil, this would be offshoring.


What are the key benefits of nearshoring?

You can enjoy several potential advantages by outsourcing various elements of your supply chain and business operations to a nearshoring location. Depending on the nature of your business and your current business model, you might recognise some of these as benefits you already enjoy by outsourcing work to offshore companies.


1. Nearshoring saves time, energy, and stress

Whether it’s supply chain digital transformation or any other business initiative, setting up the in-house infrastructure to do it yourself can take months. In contrast, when you outsource this work to a nearshoring partner, they already have the expertise and infrastructure to get started. In addition, once your chosen nearshoring company knows the details of your project, they might be able to start in a matter of days.


2. Nearshoring gives you flexibility

Building in-house teams and processes can be great, but it can also lead to significant inefficiencies, especially when introducing new business processes.


By nearshoring specific tasks, you can scale what you need your nearshoring company to do almost in real-time. As such, you don’t have one employee rushing tasks through at a low quality to get things done, and nor do you have teams sitting redundant (but getting paid!) because there aren’t enough tasks for them to do.


3. Nearshoring means more business processes operating in the same time zone

Working across different time zones can be a significant challenge, especially when pursuing new initiatives or working on big projects.


Nearshoring solves this by having your outsourced workers in similar time zones to those working in your main headquarters. This can make digital collaboration easier and facilitate in-person meetings and visits. For example, it’s much easier for a sourcing team from a company in Brazil to fly to another country in Latin America than to China!


4. Nearshoring helps you avoid potential issues with cultural differences

Countries that are neighbours have more in common from a cultural perspective than those separated by oceans and continental boundaries.


For example, if your office is in Chicago, choosing a nearshoring partner in Canada is a pretty safe bet. Both parties share a similar culture and way of living and working, have similar expectations of how a business relationship would work, and don’t need to worry about the language barrier. As businesses in the United States and Canada more or less work in the same manner, there would be no surprises and little friction in the relationship.


In contrast, if the same Chicago-based business chooses to offshore work to South East Asia, there may be cultural and language barriers and differences in business hierarchies, all of which can strain an offshore outsourcing relationship.


5. Nearshoring can be incredibly cost-effective

If you’re introducing a new process to your business, it’s far cheaper to hire experts to do it than it is to recruit and train new talent to build a new department and fit it into your business processes and infrastructure.


Longer-term, you may decide you want to bring those processes in-house, but in the short term, nearshoring helps you keep your business moving forward while maintaining high standards in everything you do.


If you’re able to nearshore to a relatively low wage economy and location, the cost-effectiveness you enjoy may amplify even further, enabling you to enjoy a healthier return on investment on whatever initiative it is you’re pursuing.


Are there any potential barriers, obstacles, and drawbacks to nearshoring?

There can be. However, these will often only rear their head if you choose to nearshore a process that you could offshore instead or are unclear about what you want to achieve by nearshoring in the first place.


Potential drawbacks to nearshoring include:


  • Increased labour costs - While nearshoring might be cheaper than doing something in-house, you may pay more to nearshore a process than you would if offshoring. Still, the other benefits you can enjoy by nearshoring a process may offset a potentially higher cost burden.
  • Reducing your exposure to a talent pool of skilled workers - In recent years, the COVID-19 pandemic has further highlighted the benefits of being able to hire people regardless of where they are. By its nature, nearshoring means you’re potentially going to miss out on working with hugely talented people from further afield, but again, you might feel the other benefits nearshoring can bring offsets this.

How to understand if nearshoring is a fit for your business

So, now you know the potential benefits and drawbacks of nearshoring, all you need to know is whether it’s a fit for your business.


If most of these statements ring true with you and your business, the chances are that nearshoring is an initiative you should explore further:


  • You’re looking to introduce new processes to your business that will involve creating a new department or significantly increasing the workload of an existing one.
  • You’re looking to save costs within new or existing processes.
  • You know what you want and have a list of tangible objectives for your nearshoring initiative.
  • You want to ensure a consistent quality of work, support, or product and are passionate about upholding your and your partners’ standards in these areas.
  • You’re looking to work with experienced specialists who can quickly get to work.
  • You don’t want to - or lack the resources to - spend time and money on hiring people or building a department yourself.
  • You want to work with a larger team but avoid dealing with time zone differences and other potential challenges.


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