Introduction to Nearshore Outsourcing
Companies are always looking for new ways to cut costs. It’s natural to be on the lookout for ways to improve efficiency while minimizing the impact of current labor shortages. One approach that has been growing in popularity in the US is nearshoring. Nearshoring is when companies outsource business procedures and services to companies in Latin America.
There are an estimated 10 million unfilled jobs in the US with only around 6 million unemployed workers to fill them. For many companies, accessing a skilled talent pool outside of the US to fill positions remotely has been vital for growth and productivity.
Nearshoring has many different advantages over traditional offshoring or onshore outsourcing, including more cultural similarities, fewer language barriers, and basically no time zone differences. This article will go over everything you need to know about Nearshore outsourcing and how your company could benefit from it.
What is Nearshore Outsourcing?
Nearshore outsourcing means outsourcing certain processes and services to countries or regions nearby. For the US, this means contracting out work to remote hires in nearby countries like Latin America. Mexico, Brazil, and Argentina are some other popular nearshore outsourcing regions due to their proximity and high number of talented candidates.
It also helps that the labor costs in these areas are lower than in the US, making hires the most cost-effective. Cheaper doesn’t mean worse though when it comes to outsourcing, as these regions are filled with skilled candidates with a focus on technology and innovation.
History and Evolution of Nearshore Outsourcing
The outsourcing trend really started to gain momentum during the late 20th century. Around the 1980s and 1990s, many companies had already started outsourcing their IT functions to countries with lower labor expenses.
The trend was driven by the desire to reduce costs and focus on more core business expenses. At first, most outsourcing was offshore, meaning outsourced to companies located all over the world. Onshore outsourcing was also popular. Now that technology is more advanced, communication is easier, making nearshore outsourcing more popular.
Nearshore outsourcing for software development became a well-established strategy for businesses interested in cutting costs and adding some diversity to their teams.
Benefits of Nearshore Outsourcing
There are many benefits to nearshore outsourcing that are missing from traditional offshore outsourcing. These included enhanced communication and collaboration, similar time zones and cultural backgrounds, as well as huge cost savings.
Enhanced Communication and Collaboration
Working with companies nearshore makes it way easier to communicate and collaborate. Working with remote teams can be difficult on its own but adding time zones and scheduling conflicts into the mix can cause a big hiccup in operations. Working with remote talent in a region that’s close can resolve many of the issues commonly encountered with offshore outsourcing. This can optimize the business process.
Similar Time Zones
Working with a region in a similar time zone also helps with communication, as most of the working days will align. Sharing similar working hours lets teams make quicker decisions and collaborate more efficiently. In the end, this results in better project outcomes and increases in productivity.
Similar Cultural Background
Nearshore outsourcing reduces the risk of cultural barriers getting in the way of productivity. Having access to a pool of candidates who are fluent in the native language of a company can ensure that new hires fit in seamlessly into their new work settings.
Potential Cost Saving
Nearshore outsourcing has some major cost-saving potential. Sourcing candidates from a region with lower labor rates can help cut expenses for a company while still retaining top hires. The cost-saving potential is one of the key benefits of nearshore outsourcing.
Understanding Nearshore Outsourcing Models
Understanding the different stages and approaches to nearshore outsourcing can help companies decide if it’s the right choice for filling vacant positions. The stages are similar to onshore outsourcing and offshore but with a few key differences.
Stages of Nearshore Outsourcing
The stages of the nearshore outsourcing cycle include strategic thinking, evaluation and selection, contract development, and outsourcing management and governance. During the first stage, strategic thinking, a client begins to consider delegating part of a company’s processes to a nearshore team.
During this stage, the need for outsourcing is thoroughly assessed to ensure it’s the right move. After the decision to outsource has been made, the evaluation and selection phase can begin. During this phase, the company can decide on which processes should be outsourced. Once it’s clear which processes need to be outsourced, contract development starts.
This stage involves finding an outsourcing partner to delegate the work to. During the final stage, the nearshore team is managed to meet expectations and goals set by the company.
Approaching the Right Model for Your Business
Nearshore outsourcing is not the only outsourcing solution available. In fact, it may not be in every company’s best interest to invest in outsourcing at all. There are many deciding factors that need to be considered before committing to an outsourcing approach.
Onshore, nearshore, and offshore outsourcing each have their own strengths and weaknesses, so choosing one will depend on your unique circumstances and goals. Each unique business process will need to be looked at the find the right approach.
Deciding Factors for Nearshore Outsourcing
There are a few key elements that can help a business decide if they need nearshore outsourcing or if another approach is better suited. These include identifying business needs, the importance of geographical proximity, and cost versus quality.
Identifying Business Needs
Identifying the needs of the business is the first step in deciding whether or not nearshore outsourcing is the right move. Taking a good look at the current business process and figuring out where nearshore talent could be best utilized will give some insight into the best approach.
Identifying the different needs, priorities, and constraints can help businesses make an informed decision when it comes to outsourcing.
Importance of Geographical Proximity
How close an outsourced team is located is another important thing to consider. Businesses must decide how important being in close proximity to an outsourced team is. Nearshore outsourcing means more convenient travel for onsite meetings to nearby countries and improved real-time communication. A shared time zone will also make working together much easier. Keep in mind that onshore outsourcing is generally more expensive.
Cost versus Quality
Considering cost versus quality is another step businesses must take when deciding whether nearshore outsourcing is the right choice. Nearshore outsourcing is typically more expensive than offshore options but is still more cost-efficient than onshore candidates.
These extra costs could be offset by the reduction in travel expenses and improved productivity. Offshore outsourcing is usually very cost-effective but comes with challenges that can wind up driving up operating costs.
Potential Challenges in Nearshore Outsourcing
There are a few potential challenges when using nearshore outsourcing. These include communication barriers, managing control and quality, and minimizing risks.
Handling Communication Barriers
One of the most common reasons that nearshore outsourcing fails is communication issues. Although nearshore teams are located in a neighboring country, certain linguistic and cultural differences could still make communication difficult. When teams can’t communicate effectively, this leads to misunderstandings regarding requirements, expectations, and priorities. Poor communication can drive productivity to a halt, so it’s vital that project managers establish clear channels for communication and encourage regular updates.
Managing Control and Quality
Managing control and quality of the project can be difficult when using nearshore outsourcing. Because of the split between the teams, there is likely a manager overseeing the nearshore team. This can make it difficult for both teams to align on the expectations and goals of the project and even lead to struggles for control.
Nearshore projects commonly stumble due to a lack of proper quality assurance, resulting in the delivery of software containing bugs and performance issues. To avoid this, it’s important to establish a clear hierarchy and robust testing strategies from the beginning.
Minimizing Risks
All software development projects carry inherent risks. Failing to identify and address potential risks is common with nearshore projects, leading to delays and budget overruns. These risks can range from technical challenges to unforeseen factors.
To effectively manage risk with a nearshore team, both the client and team should take part in a comprehensive risk assessment at the start of the project. This will allow any potential risks to be identified so a mitigation strategy can be developed proactively.
Steps to Implement a Successful Nearshore Outsourcing Strategy
The key to a successful nearshore outsourcing strategy revolves around establishing clear goals, choosing the right team, and having concrete service-level agreements.
Establishing Clear Goals and Expectations
To ensure alignment with goals and objectives, it’s important to set clear expectations for the nearshore team. This involves defining the roles and responsibilities of the new team and providing a clear path for project completion with actionable steps.
Choosing the Right Partner
Choosing the right nearshore partner is another important step in a successful strategy. Gauging a nearshore partner’s experience level, onboarding process, location, and cultural background can help decide whether or not they are a good fit for the project.
It’s also important to ask about their development model and whether they have experience working in an agile development environment.
Drafting and Implementing Service-Level Agreements
When working with a nearshore team, Service Level Agreements serve as a foundational contract that dictates the expectations and responsibilities of the team. A good SLA specifies performance standards and delivery timelines as well as monitoring and reporting procedures. This ensures that everyone is on the same page and understands their commitments.
Future of Nearshore Outsourcing
Several emerging trends and technological advancements are changing the way businesses approach nearshore outsourcing.
Emerging Trends
The Covid-19 pandemic has changed the way that businesses view remote work. The practice is now much more widespread, so nearshore outsourcing is a much more viable option for more businesses and organizations. There is a general trend of businesses moving to nearshore outsourcing due to supply chain issues and intellectual property protection.
With the growing digital transformation of companies, outsourcing roles are becoming increasingly popular. The demand for high-quality talent will only increase as more companies move into the digital age.
Impact of Technological Advancements
Advancements in technology have made communicating and collaborating with nearshore teams easier than ever. Technology like cloud computing and video conference tools have broken through the barriers typically encountered when working with outsourced teams in a neighboring country.
Conclusion: Is Nearshore Outsourcing Right for Your Business?
Nearshore outsourcing is a great option for businesses that are interested in cutting costs while still obtaining top talent in their industry. Choosing regions nearby to outsource to can lower labor costs without sacrificing the effectiveness of communication and collaboration.
For businesses looking to streamline the outsourcing process, ParallelStaff can put you in touch with developers and IT specialists with the skills needed to handle your outsourcing questions. Schedule a call now to learn more and start your outsourcing journey today!
Nearshoring FAQs:
Is Nearshore Hiring Just for Tech and Software Firms?
Nearshore hiring is popular in the tech industry but any role that can be done remotely can be outsourced. There are however some positions that are best suited for nearshore outsourcing. These include
- Software development
- Finance and Accounting
- Marketing
- Design and Product Design
- Human Resources
- Data
Nearshore outsourcing can be used to easily find top candidates for these positions.
How Does Nearshoring Help the Economy?
Access to cheaper labor and services allows companies in the US to increase their profits and reinvest the money back into the economy. Nearshoring promotes economic activities by creating more jobs and increasing overall economic growth.
Companies that can’t fill the roles they need can’t contribute to the economy. Using nearshoring, international cooperation and understanding can be fostered to promote professional and educational development for nearby regions.
What Are Some Examples of Companies Successfully Nearshoring?
Companies have been nearshoring successfully for many years. Huge companies like Amazon commonly source talent from Costa Rica. Whirlpool, Honeywell, and Ford have all set up production in a nearshore region. Companies like Northstar, Delve, and CyberFortress are all enjoying the benefits of nearshoring.
How To Hire Nearshore Workers
The first step to hiring nearshore workers is defining what your business needs. Once the needs and requirements have been set, attracting good candidates is the next step. Once a good candidate has been found, an efficient screening process should be used to test their skills and compatibility with the project goals.
Once the interview process is completed, you must make an offer that stands out to increase the likelihood of acceptance. Finding a good outsourcing partner can help make this process easier.
Which Software Should You Use for Nearshoring?
The software you use for nearshoring plays a big part in how effective the overall approach is. Good software for nearshoring should enable seamless collaboration and coordination. With the advancements in video conferencing technology, working remotely doesn’t harm productivity but low-quality software might. Some good communication and collaboration software includes:
- Slack
- Teams
- Zoom
- Google Meet
For cloud-based storage:
- Google Drive
- OneDrive
- DropBox
For project management:
- Monday.com
- GanttPro
- Teamwork
- Asana
- Jira
For HR and payroll:
- Deel
- Oyster
- People HR
- Gusto
