service activities to a foreign, lower-wage country that is relatively close in distance or time zone (or both). The customer expects to benefit from one or more of the following constructs of proximity: geographic, temporal, cultural, linguistic, economic, political, or historical linkages.
Similar terms include nearsourcing and nearshore outsourcing. The service work that is being sourced may be a business process or software development. As with offshore, the term "nearshore" was originally used in the context of fishing and other ocean-based activities and later adapted by the business world.
Nearshoring is a derivative of the business term offshoring
. Offshoring is a business activity that is complex and risky because it involves working with a foreign, distant organization. In contrast, nearshoring is understood to mean that the business has reduced the complexity and risk of offshoring.
Examples of nearshoring: American clients nearshoring to Mexico, Austrian clients nearshoring to Slovakia, Japanese clients nearshoring to China.
The complexity of offshoring stems from different languages and cultures, long distances and different time zones, spending more time and effort on establishing trust and long-term relationships, overriding communication barriers and activities of that kind.
Core essence of nearshoring
Nearshoring is the process by which an activity is transitioned from an onshore location to a geography which is closer than an offshore location. Typically, this would be a short flight away.
Softtek, a Mexican company which provides nearshore outsourcing to the US and the European Union has trademarked the term "Near Shore." Major nearshoring destinations for US businesses are Mexico, Central America and Canada, Western Europe, Ireland, Eastern Europe. Some other companies like Scio Consulting concentrate on serving independent software product development companies in the North America regions. Most organizations give preferences to nearsourcing over offshore outsourcing for a variety of reasons (both internal and external), including physical and time zone proximity, cultural affinity and other ones.
Benefits of nearshoring
Shared cultural values and similar mindset
Sense of humor, the directness of communications have always been important cultural elements of successful interactions and a constant point of frustration when crossing cultural barriers. Being different from the start can easily create tremendous hurdles in a project. But proximity can be a potential access to the extended market. Besides a nearshoring company's staff can possess engineering and technical talent and you are much more eager to feel free talking over project pitfalls due to the similarity of school and university education in neighboring countries.
By outsourcing a project to a distant country a company has to think about frequent traveling demands. Certain projects require frequent traveling from both the customer and the provider end of the venture. Effective and efficient email or over-the-phone communication is a core step to success on the way of working over an outsourcing project. So selecting a supplier in a close-by zone may improve the efficiency of day-to-day information exchange.
Short duration resources
Nearshoring companies can provide short duration resources for project requirements management, project implementation and short troubleshooting. In such cases companies do not have to use expensive resources of their own country for starting and delivering a project. Usually nearsourcing organizations provide remote services and appear in a customer’s location in a short period of time. Nearshoring sourcing model serves as a good alternative to an outsourcing projects’ performance. It reduces costs and risks of working with distant foreign companies. Besides close proximity to a service provider allows companies to develop intimate working relations Being in the same time zone is a huge advantage in software development.
Flexible, holistic and integrated approach to improving business results
You will be able to get the best from international cooperation with partner companies during project development interaction. The overwhelming majority of nearshoring companies are experts in many adjacent areas and offer additional services which appear to be an affirmative bonus for both parties with a minimum of administrative overheads, but extremely flexible regarding time, place and content that is offered. IT and management consulting, eLearning and escrow services, additional establishments of business contacts are among them Experts in companies of that kind ensure skills and supporting services in project management and business analysis, business process optimization, quality assurance, technical documentation and software localization.
Criticisms of Nearshoring
The more the distance the more management complexity appears with time, resources and budget. Managing teams is hard. Managing staff abroad is even harder. Vendor relationships are not easy. Lack of initial proximity leads to lack of direct control.
Uncertain financial payback
Final value of a project is what is paid out and not the price written down in the bill notes. Additional management, indirect management and expenses add more than cost of the project. (Latin America Monitor: Brazil Monitor; Sep2008)
Lack of proximity to staff vendor and uncertain information security
There are many cases of information leak offshore. Cultural differences introduce lack of respect towards copyright standards so piracy of software and other similar instances are common.
Lack of control over resources
Customers vary, some of them may appear really capricious ones. It is not always easy to understand the customer demands, express personal touch of a local person whom people can trust and work with. Lack of control leads to frictional sliding and lower quality.