Nearshoring Advantages – The Future of OutsourcingPosted by InterVenture on July 22, 2016
Outsourcing is a common practice for many European companies. However, different factors must be taken into consideration. Based on specific needs, companies decide whether to outsource to very far away regions, usually Asian countries (Offshoring), or back to immediate surroundings (Onshoring). A compromise between on- and off-shoring is Nearshoring.
Reasons for outsourcing
The outsourcing of processes primarily aims to optimize the existing cost structure, in other words, save money. A previously internal business branch can turn into a contract-oriented client relationship through outsourcing. For this reason, the business structure becomes significantly more flexible: personnel can be saved and service providers can be changed if required. The costs for these services often are a lot cheaper than in Germany. On top of this, the lack of specialists is gaining on relevance as one of the reasons for outsourcing.
Disadvantages of offshoring
Outsourcing in far away countries like, for example, in India and China, looks very attractive in the beginning if the desired cost reduction is the most important focus. The costs for IT development are lower there compared to Middle Europe.
However, companies also experience that different time zones and cultures are important factors when it comes to communication. Even if we can talk nowadays to clients and partners in online conferences, there is still a disadvantage for at least one participating party based on different time zones. Various additional cultural issues (missing initiative, attrition rates) could occur over time.
Different countries, different work culture
Unfortunately, different work ethics make project-oriented collaboration difficult. A simple example is India. India is a very popular country for offshoring in the field of IT development and it is considered extremely impolite to say no. This may result in accepting a contract, which is too difficult to handle for the local company. Unfortunately, this emerges often during the process and can cause additional costs. Typical hierarchies also generate friction losses in cooperations. For example, if a cooperation partner has to ask his or her supervisor for most of the decisions, this could be time-consuming and can lead to misunderstandings.
Certain legal interpretations (such as data protection) are another important aspect.
On the other hand, the proximity of cultures and time zones makes working together easier.
In relation to communication and coordination, complex business interrelations within so-called Nearshoring are significantly easier and more effective to organize compared to very distant offshoring-countries.
Let us take a look at Europe. The fall of all borders created totally new markets as well as low-wage regions. There are well-trained professional staff – an ideal panorama for nearshoring. While cultural differences exist also inside Europe, the common understanding of professionality and efficient work requirements is pretty much alike.
Also different time zones are marginal, usually not more than minus one hour (for example UK, Portugal) or plus one hour (for example Finland, Bulgaria) for central European countries. Plenty of Eastern European Nearshoring destinations as Serbia, Poland or Czech Republic are even in the same time zone (CET).
Furthermore, a remarkable number of IT-students graduate in Eastern European countries every year. A perfect pool of competent remote staff.
Outsourcing shows still a high potential for savings. A company has to decide if the disadvantages of offshoring can be replaced by the advantages of nearshoring. Because of the political uncertainties, offshoring requires the ability to deal with sensitive issues in accordance with the circumstances and entrepreneurial foresight, but not in the case of Nearshoring. Nonetheless, outsourcing is still a successful strategy for many companies.
German version of the article: https://www.interventure.info/blog/vorteile-und-herausforderungen-des-nearshoring/