Nearshoring

Nearshoring is "the transfer of business or IT processes to companies in a nearby country, often sharing a border with your own country", where both parties expect to benefit from one or more of the following dimensions of proximity: geographic, temporal (time zone), cultural, social, linguistic, economic, political, or historical linkages. The service work that is being sourced may be a business process or software development.

Overview

Nearshoring is a derivative of the business term offshoring.

Offshoring involves shifting work to a foreign, distant organization in order to reduce production costs. Offshoring is subject to several different constraints, however, such as time lag between the parties, differences in local employment laws and practices, and oversight. A Western European IT company, say, might outsource software writing to a company in India, which specialises in such work, to take advantage of low cost, and skilled labour with a common language, but the distance between the two means reduced face contact, therefore less control of the project, and greater vulnerability to threats such as intellectual property theft and fraud.

In contrast, nearshoring means that the business has shifted work to a lower cost organization, but within its own region, broadly defined.

In Europe, nearshoring relationships are between clients in larger European economies and various providers in smaller European nations. Major centers are in Spain, Czech Republic, Hungary, Portugal, Poland, Slovakia, Romania, Bulgaria, Belarus and the Baltic. There are also nearshore centers in larger markets, such as Russia and Ukraine. These destinations are attractive because they are low-cost, have skilled labor forces, and a less stringent regulatory environment, but crucially they allow for more day to day physical oversight. They also have strong cultural ties to the major economic centers in Europe. For example, Bulgaria is now considered to be a viable outsourcing destination for such companies as German software company SAP, where labor costs are low, and the skills available, but which is also closer to home. In 2009, the Central-Eastern European Outsourcing Association (CEEOA) published research estimating that the Eastern European region has over 95,000 IT specialists involved in the industry, working for close to 5000 companies.

In the USA, American clients nearshore to Canada and Mexico, or both, as well as to many other nations in Central and South America like Argentina, Brazil or El Salvador and the Caribbean like the Dominican Republic and U.S. Virgin Islands.

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. Many nearshore providers attempted to circumvent communication and project management barriers by developing new ways to align organizations. As a result concepts such as remote insourcing were created to give clients more control in managing their own projects. Despite recent developments, nearshoring doesn't necessarily overcome all of the barriers, but the proximity allows more flexibility to align organizations.

Nearshoring has become a marketing differentiator for those nations and providers who wish to set themselves apart from sourcing centers in Asia, especially the dominant, India.

See also

• Co-sourcing