Shore Leave – Is Offshoring Or Nearshoring Right For Your Brand

Building a stable and scalable business in 2020 is a sticky proposition.  Rising costs and black hat tactics from competitors can erode profits at an alarming pace and, many brands struggle to move off the starting block.  One of the ways in which companies attempt to reverse this negative flow of profits is by outsourcing operations such as production and software development.  This is, essentially, the practice of commissioning overseas businesses to complete the work and, it works on a number of levels.  The main reasons for outsourcing are to save cash on labour and equipment and, to tap into specialist tech teams.  Outsourcing is by no means ‘one size fits all’ and, the most common options are Onshoring, Farshoring, Nearshoring, Offshoring and Bestshoring; all of which offer unique benefits and drawbacks.  Today, we’re going to be talking about the main two types of outsourcing; nearshoring and offshoring and, looking at the pros and cons for each. 

Close to home – Nearshoring

An increasingly popular choice, Nearshoring is the process of transferring your production or software development to a country within a relatively close distance to your own.  Europe is far and away the biggest Nearshoring market due to the fact that it contains lots of countries packed close together – many of which are connected by road.  For example, a business in Berlin may choose to outsource its app development to a company in the Czech Republic, less than four hours away by road. 

The benefits of Nearshoring

There are a few really good reasons to get on board with this kind of outsourcing and, these are: 

The price is right

The savvy business owner always has one eye on the finances and, this is where Nearshoring comes in.  With projects such as software development, brands can save around 40% on technical expertise.  For businesses whose operation relies on its technology, such as e-commerce brands, this kind of saving can literally be make or break for the business. 

Timing is everything

Nearshoring, by its very nature, means that the work is carried out in a country not too far from yours – the important thing here is that this means a shared or similar time zone between your firm and theirs.  The undertaking of a software development project is complex and occasionally fraught and, its really important that you’re able to maintain close communication with your tech team.  With Nearshoring, a timezone within an hour or two allows you to stay in touch with your team more or less in ‘real time’. 

Distance no object

If you’re working on a more complex project, you’ll probably find it helpful to be able to hold real-life, face to face meetings with your team.  Nearshoring lends itself perfectly to this as meeting with your team is easy thanks to short distances and low cost, short-haul airlines. 

Speaking your language

Whether you’re outsourcing to Poland or Prague, a language barrier is very rarely an issue.  Within Europe, there are many languages with shared characteristics and, on top of this, English tends to be a common denominator.  For business outsourcing, this equates to clear and efficient communication between the two companies. 

The drawbacks of Nearshoring

Although the benefits far outweigh the negatives, there are a couple of drawbacks to this option and, these are: 

In production

Although Nearshoring is a great choice for activities such as software development, it’s not always the most cost-effective for production.  Increased property costs and customs fees combined with the cost of transporting parts often mean that any cost savings are negated. 

High days and holidays

Whilst you can reasonably expect your tech team to keep the same working days and hours as you do, there’s a good chance that their national holidays will be different to yours – although this may not be a huge problem, it’s something to keep in mind if your project is time-sensitive. 

The Far Side – Offshoring

The original form of outsourcing, offshoring involves contracting out parts of your business to far flung countries such as India and China.  Enduringly popular, Offshoring has one major benefit and some significant drawbacks.

The benefits of offshoring

As we’ve mentioned, there is one pretty important reason for offshoring:

Cheap at half the price

Outsourcing to far flung or ‘third world’ countries offers massive cost savings – particularly within the production sector.  Rock bottom pay rates and cheap manufacturing and warehousing help businesses to keep costs down and optimise profits which can be used for reinvestment.  As well as production, many of these countries are now throwing their hat into the ring within the tech sector for even more savings. 

The drawbacks of offshoring

Whilst offshoring can be great for your budget, there are a few important things to bear in mind before taking the leap: 

Lost in translation

The main issue with offshoring is, without a doubt, the language barrier.  Often a lack of a common language can hinder communication and cause delays.  At worst, translation issues can lead to costly and time-wasting errors. 

The end of the road

In a lot of cases, long distances mean headaches in terms of transport.  For a business relying on delivery of products from overseas, lengthy delays caused by strikes and weather issues can be disastrous.  Add into the mix delays caused by product being examined / seized by customs and this can easily be the end of the road for your business. 

Against time

When your tech team is a few time zones away, communication becomes close to impossible (with the added issue of the language barrier we’ve talked about).  Generally, you’ll find that communication is limited to emails which can quickly become frustrating when you need a quick answer to a query. 

Near Or Far?

There’s little doubt that both nearshoring and offshoring offer some really significant cost savings for businesses.  Having said that, although offshoring may be the answer for businesses looking for cost effective manufacturing and warehousing, the issues may be prohibitive for many companies.  Nearshoring, on the other hand, offers many benefits and very little drawbacks, particularly within the technical sector.  

This article has been provided by Future Processing