Nearshoring is about the outsourcing of several business procedures, particularly within the software development and information technology developments, to companies in other country, often sharing a border with the destination country. In which both parties expect to benefit from one or more of the following dimensions due to proximity: geographical, temporal (time zone), cultural, linguistic, economic, social, political and historical.
These days, the practice of hiring employees from a neighboring country who will work for lower salaries is very popular. Large companies consider it an ideal alternative in comparison to paying higher salaries to the people they hire in their own country.
Offshoring versus outsourcing
When it is deciding between the options of offshoring or outsourcing there are several factors that need to be considered, because the “right” decision will be different from company to company. Ultimately, there are important cost savings and benefits as in offshoring as outsourcing specialization, which is what drives many software companies in Europe to choose these routes.
It means to the obtaining of certain services or products of a third party company, essentially the purchase of something like the accounting services or the manufacture of a certain entry to another company. While many think that outsourcing refers to using a service provider in another country (usually cheaper) that is not necessarily the case. Outsourcing can be made to a company that is located anywhere, the location is not important.
Reasons why a company would choose to outsource.
Often, some services or products can be obtained at a much lower price by obtaining the same level of quality. When quality is not as good as it could be done, cost savings are so significant that the trade-off is considered acceptable by management. Service outsourcing often includes internal business departments like finance or Information Technology, where you can get significant cost savings.
Some business processes or products are very specialized and outsourcing to another provider that provides access to better quality. In manufacturing, for example, each computer manufacturer does not need to specialize in the manufacture of microchips, they can subcontract it and obtain a higher quality product than they could build themselves.
Any company that has input suppliers for their manufacturing process is essentially the best choice to outsource part of their manufacturing process.
For many companies outsourcing provides the advantage of having to pay precisely what you need. If the staff of a full finance department have to pay salaries even during downtime, while subcontracting their financial services they only pay for the hours worked.
Similarly, if a company needs only a small number of a specific input for its manufacturing process, it would not make sense to build the capacity to manufacture that component themselves. Outsourcing provides the flexibility to pay only what you need.
While in the case of offshoring it is in many respects comparable to subcontracting, but to be very specific we can say that it is the transfer of a part of the productive process of a company to another country.
Reasons why a company chooses offshore.
We can say that the main objective of offshoring is to be able to produce goods or have services rendered in a much cheaper country. Whether this is having software development services made in Spain or another country will allow cost savings to a company based in the United States or Europe can be significant.
- Taxes and fees
Many decisions about offshoring are driven by the desire to take advantage of some tax or tariff relief in some countries. There are many loopholes in fiscal and tariff regimes in many countries that can enable companies to generate large savings and import products for use at a relatively low price.
Some companies would choose offshore instead of outsourcing when they do not want to give up the control of one part of their production (or internal business services) to a third party. Some production inputs are very sensitive or depend on the weather and if a provider did not deliver exactly as expected it could be disastrous for the undertaking. In these situations, a company can opt for the foreigner and ultimately maintain full control and responsibility.
What is onshoring?
It is that process where some companies close the plants they had opened in other countries due to the low costs and reopen plants in their country of origin. This is what is known as onshoring or reshoring.
The reason why this is done is because the managers of these companies have found that it is cheaper to produce at home. That thanks to the public helps, some evolutions in the types of changes. Among other things.