Outsourcing has become an increasingly popular strategy as businesses seek to cut costs and improve efficiency. A study conducted by FlexJobs found that 48% of employers are outsourcing some of their business functions. While the concept has been popular for years, this number indicates that it is a trend that has become firmly established in corporate playbooks.
Outsourcing involves hiring a third-party service provider to perform tasks or services that would otherwise be handled in-house. When looking to cut costs and/or scale their teams quickly, companies usually have to weigh up nearshore outsourcing vs. offshore outsourcing vs. onshore outsourcing. Each has its advantages (and, of course, disadvantages). Knowing how they differ can help you choose the best solution for your needs.
In this article, we will look at the differences between nearshore, offshore, and onshore outsourcing, examine the benefits and challenges of each approach, and explain why nearshoring is an excellent option for US businesses.
What is the Difference Between Nearshoring, Offshoring, and Onshoring?
Nearshoring, offshoring, and onshoring are three approaches to outsourcing remote talent. They all entail engaging a third party to take on some responsibilities within your company. They differ in terms of where the remote talent is located, which can, in turn, affect your working relationships with them.
Nearshore outsourcing, or nearshoring, means outsourcing business processes and services to talent in a neighboring country or nearby region. It means engaging talent from a location close to your headquarters, facilitating easier communication and coordination due to time zone and cultural alignment.
On the other hand, offshore outsourcing, or offshoring, entails outsourcing roles to talent in a country far away from your business’ headquarters. The incentive to do this will usually be because the offshore countries have lower average hourly wages than the US.
Companies have been outsourcing to far-away countries for years, with many US companies outsourcing some services to India, China, the Philippines, and Indonesia because of the cost savings of offshore outsourcing.
Onshoring is the least broad outsourcing approach, limiting hiring to talent in the same country—often only in a different city. This approach is best for companies who want an easy outsourcing path without the complications of cultural differences or foreign tax compliance.
Advantages of Nearshore and Offshore Outsourcing Over Onshore
Among the three outsourcing approaches, nearshoring and offshoring are deemed more beneficial than onshoring. Hiring remote foreign employees gives companies access to a wider pool of talent than they otherwise would be able to access by hiring in the same country, reduced labor costs, and specialized expertise.
Compared to nearshoring and offshoring, onshoring presents some limitations for companies. Because they are hiring people from the same country, they can’t maximize the potential of remote hiring. One of the things they miss out on is benefitting from the cheaper labor costs that result from hiring from other parts of the world.
Offshoring and nearshoring allow organizations to look for candidates outside the bounds of their geographical borders. They can find talent in countries with favorable labor laws and exchange rates and lower costs of living. Lower living costs translate into savings for the company because they can pay a lower salary than they do for US employees while still providing compensation to the remote worker that is fair in relation to their living expenses.
While onshoring, the employer is still tied to the standards, labor laws, and minimum hourly rates applicable in the US, which limits the benefits they can reap with outsourcing talent.
Some countries specialize in specific industries that will fit the role that you are looking to fill. Nearshoring and offshoring allow you to access the specialized expertise found in different localities, helping you fill your organization’s skill gap.
For example, some nearshore countries in Latin America focus on yielding talent in the tech industry, making them highly adept at filling IT and tech roles—something that will be difficult to find in the competitive talent market in the US.
While you could likely find suitable candidates that meet your requirements with onshoring, you can reap the benefits of outsourcing by hiring from nearshore or offshore locations and getting access to great talent at a cheaper cost.
Nearshore vs. Offshore
So, we’ve established that nearshoring and offshoring will likely reap more benefits for your company than onshoring. But there’s still an unanswered question: Which is better—nearshore or offshore outsourcing? Let’s explore the main areas where these two approaches differ.
One of the biggest advantages of working with a nearshore partner is the favorable time zones. Nearshoring allows you to work with individuals who likely share a similar time zone as your company’s headquarters. And even if they do have a slight time difference, the gap isn’t too significant to disrupt your normal operations.
This setup allows for easy coordination and communication without any delays: meetings can occur during convenient times for both sides, which is much harder to do with the considerable time differences involved with offshore outsourcing.
For US companies, the differences in time zones between the US and Latin American countries are negligible. LatAm countries are within two hours or less from EST, making communication during business hours effortless.
Offshoring can be a tad more challenging to manage because of the considerable time zone difference. However, it could be precisely what you’re looking for, especially if your business needs 24/7 coverage for your processes. With people working in different time zones, you can operate around the clock and provide your services regardless of your standard working hours. But if working seamlessly in your normal business hours is important to you, than having an offshore partner will obviously not be your best choice.
Work culture is an important aspect to look out for when hiring talent. Many companies make it a point to hire individuals with values that align with theirs and a character that will integrate well within their company culture.
In general, countries that are closer to each other share more cultural similarities. Nearshoring can be more beneficial in this sense. On the other hand, offshoring may present a challenge with cultural compatibility if the worker is from a country that is very different and has different working practices. That said, of course, there can be incompatibility issues with cultural fit within an organization regardless of the outsourcing model being used (including onshoring).
However, outsourcing to nearshore locations makes you more likely to build remote teams that seamlessly work together without cultural barriers.
Whether looking at offshore countries or nearby countries, many have high levels of English proficiency and, of course, native speakers. With nearshoring or offshoring (and indeed sometimes with onshoring), you always have to evaluate the individual candidate’s English proficiency level.
In nearshoring to Latin America, the candidates you will attract will be the top players, most of whom will have high English proficiency, often English as good as a native speaker, as there is a good chance they completed some of their schooling in English or have spent time in the US.
Many people will have concerns about language barriers when outsourcing abroad. However, at the end of the day, you will only hire business professionals with the level of English proficiency you need, so language barriers will not be a problem.
Outsourcing often entails working virtually without requiring candidates to fly to your headquarters for business trips or on-site meetings. However, if you need occasional face-to-face interactions to be a part of your working relationships with remote workers, nearshoring may be preferable over offshoring to reduce travel costs.
Hiring from offshore locations means that your workers are from the other side of the world, so in any instance, if you need to do on-site meetings with your outsourced talent, bringing people in from Asia or Eastern Europe, for example, is going to come with high expenses. This is compared to flying them in from closer countries in LatAm, where you can save on costs. And because travel between the US and LatAm will likely be within common time zones, there will be little to no jet lag to slow down business productivity.
Which One Is Best for US Companies?
Both nearshoring and offshoring offer advantages for businesses looking to hire remotely. Which is best for you depends on your needs and priorities.
Offshoring may be a good option for US companies that prioritize cost savings and are only looking to hire talent to fill entry-level or supporting roles like virtual assistants or executive assistants. It’s also suitable if time zone alignment and frequent coordination with your remote worker are not priorities.
However, nearshoring will usually be the most favorable outsourcing approach, regardless of your company’s needs. It enables you to tap into a larger pool of candidates with specialized expertise to scale your teams quickly without worrying about significant cultural, language, or time zone gaps.
Thus, it’s the best approach for companies that place high relevance on time zone alignment and cultural compatibility. Like offshoring, nearshoring can help companies reduce costs. It empowers organizations to acquire top talent with skills and experience while reducing overhead by up to 70%.
Nearshoring allows your company to maximize the benefits of hiring remotely while dodging many of the challenges that come with it.
Outsourcing can be a powerful tool for businesses seeking to reduce costs, improve the expertise of their teams, and access new talent pools. Nearshore, offshore, and onshore outsourcing each have their own unique benefits and challenges, and the choice of which to use will depend on a variety of factors, such as budget, time zones, and the work you need to outsource. Ultimately, the success of any outsourcing strategy will depend on careful planning, effective communication, and ongoing monitoring and evaluation.
By carefully considering the pros and cons of each approach and taking a strategic, long-term view, businesses can successfully outsource their operations and achieve their goals. The outsourcing option that will be best for your company depends highly on your needs and priorities.
Nearshoring presents the most advantages for US companies, giving you access to a broader and more experienced talent pool at a lower cost without worrying about significant differences that could hamper your working relationships.
If you’re ready to start taking advantage of the benefits of nearshoring, partner with Near to make your search for the best LatAm talent simple and cost-effective. We will help you scale your team in under 21 days. Schedule a complimentary consultation call today.