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Nearshore Outsourcing: What Is It?

Businesses can’t do everything themselves. That’s why specialists exist in the first place.

Think about accountants, lawyers, and web developers. A company needs these experts to function, but they don’t necessarily have the in-house expertise to handle everything themselves.

That’s where outsourcing comes in.

Outsourcing is the process of hiring a third-party company or individual to complete a task or project that would otherwise be completed by an employee within the business.

It’s a way to save time and money by delegating tasks to those who are better equipped to handle them. It can be especially useful when dealing with multiple projects simultaneously, as there is simply too much work for one team to handle.

The exact outsourcing methodology used depends on the company’s needs. For example, a business might outsource its accounting to an external firm but keep its web development in-house.

There are various different types of outsourcing, however, and nearshore outsourcing is one of them.

In this article, we will delve deeper into nearshore outsourcing, discuss a few examples, as well as go through its benefits and drawbacks.

Let’s get started!

What is Nearshore Outsourcing?

First let’s talk about generic outsourcing. As defined above, companies outsource when they don’t have the in-house expertise to complete a task and it’s more efficient (time and/or cost-wise) to delegate the task to a third-party.

Outsourcing can be either domestic or international.

Domestic outsourcing is when a company hires another business within their own country to complete a task.

International outsourcing is, well, the opposite — when a company outsources to another business in a different country.

Now that we know the basics of outsourcing, let’s get into nearshore outsourcing specifically.

Nearshore outsourcing is a type of international outsourcing where businesses delegate tasks to another company in a neighboring country.

It is given a specific name due to how popular it is in the business world. A huge number of companies are getting into nearshore outsourcing compared to outsourcing to countries further away or within their own local country.

There are many reasons why businesses might choose to nearshore outsource as opposed to going the international outsourcing route.

The main ones being that it’s often cheaper and there are fewer language barriers. We will discuss its benefits and drawbacks in further detail below.

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Nearshore Outsourcing Examples

1. Accounting

This is probably one of the most popular examples of nearshore outsourcing. After all, who doesn’t need an accountant?

Small businesses in particular can benefit from hiring an external accounting firm as they often don’t have the internal resources to support a full-time accountant.

2. Customer Service

A lot of businesses outsource their customer service to third-party companies, especially if they are based online. This is because it can be more cost-effective and it frees up time for the business to focus on other tasks.

3. Web Development

A lot of businesses, especially small ones, don’t have an in-house web development team.

This is because web development is a specialist skill that requires a lot of training and experience. As a result, many companies choose to outsource their web development needs to third-party firms.

These are just a few examples of nearshore outsourcing, but there are many more. The important thing to remember is that businesses can outsource almost anything these days — from social media marketing to human resources.

Potential Nearshore Outsourcing Situations

To further highlight nearshore outsourcing in the real world, consider the following situations below:

Situation 1

A business in the United States wants to outsource its customer service department but doesn’t want to deal with the language barrier of having customer service representatives in a different country.

So, they decide to nearshore outsource to Canada where there are plenty of English speakers.

Situation 2

A company in Mexico wants to develop a new app but doesn’t have the in-house expertise.

It would be cheaper and quicker to just nearshore outsource the project to developers in Guatemala rather than going through the process of finding and hiring individuals within Mexico.

Situation 3

A business in Brazil wants to create a new website but doesn’t have the time or resources to do it themselves.

So, they outsourced the project to a web development company in Argentina.

These are just three examples, but there are plenty more businesses that could benefit from nearshore outsourcing. The point is, if you’re looking to save time and money on a task or project, then nearshore outsourcing might be the right solution for you.

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5 Benefits of Nearshore Outsourcing

Let’s discuss a few reasons why nearshore outsourcing could help your company out -  more than you ever anticipated.

1. Access to a Wider Talent Pool

When businesses nearshore outsource, they open themselves up to a much wider talent pool than if they only looked within their own country.

This is because there are simply more people in the world than any one country could hope to provide. It is also the case that the talent pool of neighbouring countries is likely to be quite similar to your local talent pool, so it means there will be fewer issues with culture clashes etc.

2. Cost-effective

Nearshore outsourcing is often more cost-effective than domestic outsourcing or international outsourcing further away.

This is because the neighbouring countries will usually have a lower cost of living, which means that their workers will be willing to accept lower wages. This can be a massive source of saving for businesses, particularly when they are on a tight budget.

3. Quick and Easy Communication

Another big benefit of nearshore outsourcing is that communication is quick and easy. This is because there are usually no time differences between the two countries, and they will often share a common language.

This makes it much easier to discuss projects, give feedback, and make changes quickly.

4. Improved Customer Service

Customer service is often one of the areas that can be most improved by nearshore outsourcing. This is because businesses can take advantage of the fact that there are usually no time differences between the two countries.

This results in customer service being available 24/7, which is a huge benefit for both businesses and customers.

5. Increased Flexibility

Nearshore outsourcing also gives businesses increased flexibility. This is because they can scale up or down their use of nearshore outsourcing very easily, depending on their needs. If a business suddenly has a lot of work to do, they can simply increase the number of hours that their workers are working.

Similarly, if they need to cut costs, they can simply reduce the number of hours. This flexibility is very valuable for businesses and can help them to save money.

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5 Drawbacks of Nearshore Outsourcing

We might think that nearshore outsourcing is all sunshine and daisies, but unfortunately that isn’t the case. Let’s take a look at some drawbacks and challenges associated with it…

1. A Smaller Talent Pool

I know we said nearshore outsourcing increases the talent pool, but it’s also true that when a business chooses to nearshore outsource, they’re limiting their talent search to a smaller geographical area.

It might increase the talent pool compared to only hiring locally, but decreases the talent pool when we start looking at international talent.

This can make it harder to find the right person or team for the job as there might not be as many qualified individuals in the neighboring country.

2. Language Barriers

Even though there are fewer language barriers with nearshore outsourcing than international outsourcing, they still exist.

If businesses aren’t careful, they might end up hiring someone who isn’t completely fluent in the required language, which can lead to communication and collaboration issues further down the line.

3. Cultural Differences

Another challenge associated with nearshore outsourcing is cultural differences. Even though businesses are only outsourcing to a neighboring country, there can still be significant cultural differences that need to be taken into account.

For example, what might be considered normal business hours in one country might not be the same in another. This can make it difficult to coordinate work and expectations.

4. Different Legal Systems

A potential issue is that different countries often have different legal systems. This can make it tricky to navigate any legal issues that might arise from the outsourcing arrangement.

If you choose to hire locally, you will have a much greater knowledge of the legal systems and how legal proceedings work than if you hired employees based in a different country.

5. The Risk of Political Instability

One final challenge worth mentioning is that there’s always the risk of political instability in foreign countries. This can lead to a whole host of problems, such as businesses not being able to access their outsourced team or work being interrupted.

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Final Thoughts

Nearshore outsourcing can be a great way for businesses to save time and money, but it’s not without its challenges. Businesses need to be aware of the potential risks and drawbacks before they enter into any nearshore outsourcing arrangements.

Judge whether this is the right form of outsourcing for your firm, and proceed accordingly. Best of luck!