In these tough
financial times, many organizations are expecting far-flung destinations for
their business or IT processes to take advantage of lower wages, lower
infrastructure costs and lower operational costs.
Outsourcing is one
of the best practices proven as a great business model for increasing profit
margin, reducing operating costs and maintaining high-quality customer service.
The business model is generally scalable and it allows companies in any
business market to adjust resource allocation especially during the business
conditions change.
In order to
increase profits and reduce expenses, many companies choose for out-of-country
outsourcing, which consists of two major categories such as offshoring and nearshoring.
Offshoring is the
process of reducing production costs by relocating business processes,
operational processes or supporting processes of a company, from one country to
another foreign country.
Recently, offshoring
has been primarily allied with the sourcing of administrative or technical
services that support both local operations and global operations from outside
the home country, through internal or external delivery models.
The main reasons
why companies would offshore their IT projects are as follows:
·
Increase
in productivity
·
Availability
of manpower pool
·
Rapid
turnaround time
·
Low
staff-related costs
·
Significant
cost advantage
·
Focus
on essential business operations
·
Operational
flexibility
·
Enter
in new market areas
Even though the
preliminary stage savings could be made through offshoring are conspicuous,
what is less palpable are the hidden costs, problems that occur in management, variation
in employment practices and laws, time lag, instability and miscommunication
among clients and suppliers, that can result due to a misalignment of
expectations when delivering services.
In contrast to
offshoring, nearshoring is the process of transferring IP processes or business
to other companies in a nearby country, habitually sharing a border with your
country, where both the companies expect to benefit from different dimensions
of proximity such as cultural, economic, political, linguistic, geographic,
time zone, etc.
Most companies
prefer the nearshore approach for their business or IT processes because of the
following reasons:
·
Similar
time zone: As the nearshore destinations have similar time zone, both the
parties will get some key advantages such as work done at same time, get well-coordinated
projects, which leads to more satisfied and steady workforces.
· Similar
language: As both the parties are in the same region, the nearshore
provides experts in their client’s language. Therefore, the nearshore providers
can able to easily and effectively communicate with their clients via.
Telephone or E-mail.
· Geographic
proximity: The Geographical closeness of both the parties allows them meet
in person whenever they require. This helps them to easily solve some difficult
issues face to face.
· Cultural
affinity: The cultural affinity of the parties helps them to have better
communication as well as coordination. As there is a huge gap between
offshoring partners, a lot of problems arise, which will be definitely avoided
in nearshoring.
·
High-standards
of education: Although the education standards are not identical, they are more
likely to be related in nearby countries. The well-trained nearshore providers
will be having an education similar to their clients.
·
Cost-effectiveness:
Nearshoring provides organizations the ability to manage a high-level of
control on their production costs by enduring the cost of doing business at
low-cost.
Nearshoring
conquers several constraints of offshoring such as time lags, variation in
local employment practices and laws and other oversights to tackle risks, which
include intellectual property thievery and fraud. It offers great constancy and
security along with cost-effectiveness. The benefits of nearshoring reflect
both the country’s trade practices, standards, legislation and institutions.
For many companies,
nearshoring represents the perfect combination between operational efficacy and
cost-savings, merging the advantages of both outsourcing and on-site
activities.
In the sourcing
industry, nearshoring is continue to grow and also becoming a feasible and
attractive alternative when compared to offshoring, by focusing on proficient
service areas as well as encouraging cultural, geographical and long-term cost
savings.
In recent days,
nearshoring has become a great marketing differentiator for the nations and
providers who want to make themselves apart from other sourcing centers in
Asia, particularly the dominant, India.
Even, already
established offshore providers are now setting up nearshore centers to remain
competitive to the UK market. Still, India is doing great job in the offshore
stakes. Indian companies are also looking forward to extend the offshore
opportunity that helps them to increase nearshore strategies and also they are
building up websites in several European countries.
Both offshoring and
nearshoring entail export of production or functions, however both are
basically different. A business may choose offshoring or nearhoring to utilize
the services of outsourcing provider or to carry out the process itself.
Depends on the
goal, business activities and risk management strategy, an organization will
choose the type of outsourcing approach, either nearshoring or offshoring. However,
the organization should also be aware that offshoring may cause more risks when
compared to nearshoring.
