Companies are increasingly seeking ways to cut costs, improve efficiency, and minimize the impact of labor shortages. An approach that continues to grow in popularity in the US is nearshoring—outsourcing business procedures and services to companies in Latin America.
With nearly 10 million jobs unfilled in the US but less than 6 million unemployed workers to potentially fill them, accessing a skilled talent pool outside the US to fill remote roles is key for growth. Nearshoring also offers several advantages over traditional offshore outsourcing to distant countries, including cultural and language similarities, shorter travel times, and little to no time zone differences.
This article explains what nearshore outsourcing is, its benefits and challenges, and how you can implement a successful nearshore hiring strategy.
What Is Nearshore Outsourcing (Nearshoring)?
Nearshoring outsourcing is outsourcing your processes or services to a nearby country or region.
In the case of the US, contracting out work to remote workers in Latin America (LatAm) would be considered nearshoring. For example, you might nearshore your software development to Mexico or Costa Rica rather than to a more distant country like India or China.
For US companies, Mexico, Brazil, and Argentina are popular locations for nearshore outsourcing due to their proximity, abundance of highly skilled talent, and lower labor costs compared to the US. These countries focus on technology and innovation, making them ideal places to find software developers, digital marketing experts, and just about any type of professional you need.
Nearshoring vs. Onshoring vs. Offshoring
Onshoring and offshoring are two other types of outsourcing strategies. Onshoring means hiring workers within the US, while offshoring involves hiring workers from distant countries with time zones that don’t align with US working hours.
Onshore outsourcing doesn’t provide the same cost reduction advantages as offshoring and nearshoring because salary costs are higher in the US.
On the other hand, while offshore outsourcing usually leads to cost efficiencies, it often also leads to communication difficulties due to time zone and cultural differences. Nearshoring is usually the better choice, allowing for time zone compatibility, cultural similarities, and reduced travel costs.
We go into more detail on the differences between nearshoring, onshoring, and offshoring in our article “Nearshoring vs. Offshoring vs. Onshoring: What’s the Difference?”
Nearshoring vs. Outsourcing
Outsourcing is a broader term that involves hiring a third-party provider to handle specific tasks or functions. Nearshoring is a specific type of outsourcing that focuses on cost savings and accessing larger talent pools and specialized expertise by hiring remote workers from a nearby country.
A significant difference between outsourcing and nearshore hiring is that, with nearshoring, remote team members work closely with your in-house team. You will want to make them feel like part of the team by, for example, including them in virtual meetings and chat channels to foster collaboration and integration.
Nearshore Outsourcing Benefits
Nearshoring has a number of advantages, both in its own right and when compared to onshoring and offshoring. In brief, some of the nearshore outsourcing benefits are:
- Lower salaries reduce overhead costs
US companies nearshoring to Latin America can save 30–70% compared to hiring domestically. These savings are possible because the cost of living in LatAm is lower. Consequently, salary expectations are also lower.
This is a win-win situation: you save money while your remote workers receive fair compensation. Often LatAm hires will make significantly more than they would in their local area.
And because your LatAm-based workers will earn a good wage (in US dollars, which is often more stable than their local currency), they will be motivated to work hard and keep partnering with you for the long term, helping lower turnover and therefore reducing recurring recruitment costs.
- Expanded talent pool
“Finding, developing, and keeping the right talent with the right skills at the right price is more elusive than ever.”
Deloitte Global Outsourcing Survey 2022
Nearshore hiring can also help businesses address talent shortages in their local area or industry by opening up a much wider talent pool to source from. By nearshoring, you can access a wider pool of qualified professionals to help fill these gaps.
Hiring remotely and accessing a larger talent pool is also the easiest way to scale a team at speed. A larger talent pool means you are more likely to find the talent you need quickly and reduce your time to hire. Plus, by hiring remotely, you can grow your team fast without needing the additional office space and associated infrastructure (office equipment, etc. ) you would need to increase an in-house team, which could take ages to source.
- Lower salaries reduce overhead costs
US companies nearshoring to Latin America can save 30–70% compared to hiring domestically. These savings are possible because the cost of living in LatAm is lower. Consequently, salary expectations are also lower.This is a win-win situation: you save money while your remote workers receive fair compensation. Often LatAm hires will make significantly more than they would in their local area.And because your LatAm-based workers will earn a good wage (in US dollars, which is often more stable than their local currency), they will be motivated to work hard and keep partnering with you for the long term, helping lower turnover and therefore reducing recurring recruitment costs.
- Similar time zones enable better communication and collaboration
Your LatAm hires would be within two hours of EST, meaning most of your working day will align. This allows for quicker decision-making and more efficient collaboration, which can result in better project outcomes and increased productivity.
For US companies, working with colleagues in LatAm at mutually convenient times takes no more consideration than working with colleagues on opposite sides of the US—in fact, there will often be less of a time difference.
- Great cultural fit and English proficiency
Nearshoring reduces cultural barriers and allows for a more seamless integration of business processes.
When hiring from Latin America, US companies attract the top performers with the highest levels of English proficiency. Many of these top professionals have previously worked for US-headquartered multinational companies and can fit seamlessly into US work settings.
- Allows you to hire the top 1%
Nearshoring allows you to hire the most experienced professionals because of the strength of the US dollar.
Although you will pay your LatAm-based workers less than you would comparable US-based workers, you will provide them with superior wages compared to what they could get working for a local company. As mentioned earlier, this is a win-win situation. And it means you can make attractive offers that can allow you to secure highly skilled professionals.
For example, PwC has offices in Argentina and Mexico. So finding highly skilled LatAm finance and accounting candidates that have worked for the Big Four is not unheard of.
- Business continuity
Having some of your team in different locations makes it easier to run operations smoothly if unforeseen circumstances affect your main office/headquarters.
If a natural disaster strikes, your remote teammates can keep working. It also allows you to have coverage when your US team might be observing a national holiday if that is something you need to consider.
- Build high-performing, agile teams
Hiring from LatAm increases your team’s diversity and breadth of experience, which fosters innovation.
LatAm workers will bring new ideas and a fresh perspective, making them valuable assets to any company. This is good for business—companies with more diverse workforces are more profitable and have higher employee satisfaction ratings.
In addition, contracting with remote workers on a flexible basis allows you to adapt quickly to market changes. You can more easily scale up and down your workforce when needed, especially when contracting on a per-project basis or through a recruiting firm that can quickly source new talent.
Nearshore Outsourcing Challenges
There are some potential difficulties and challenges when hiring from LatAm, such as:
Hiring from a nearby country can present challenges in complying with that country’s laws and regulations.
Every country has its own set of laws, labor codes, and regulations that businesses must comply with. Failure to comply with these can result in legal consequences, including fines, penalties, and legal disputes.
This is why businesses might prefer to work closely with an outsourcing partner with the expertise to ensure compliance with all applicable laws and regulations.
- Verifying skill and competency
It may not be easy to verify the credentials and qualifications of remote workers, particularly if they are in a country with different educational and professional qualifications. This can make it challenging to assess their skills and determine if they are suitable for the role you need to fill.
You may need to be a bit flexible when evaluating skills and recognize that some hard skills are interchangeable. For example, while Netsuite and Quickbooks are the most common tools in the US for accounting roles, many LatAm companies use SAP. However, getting up to speed with Netsuite or Quickbooks would be a quick process for skilled candidates. Even if they don’t know the exact tools, Latin Americans are highly adaptable and can learn them quickly.
You will need to develop effective strategies and systems to address these challenges and ensure that remote workers can perform their roles effectively if you are not working with a recruiting firm.
- Finding the right candidates
The talent acquisition processes you currently have in place likely won’t be sufficient for hiring from Latin America. You need a well-thought-out screening process, especially if you advertise your position on job boards that may attract hundreds of applicants.
For example, you will need to screen for their English level before jumping on a call. You won’t just be checking whether they have a basic proficiency (which their application will inform you of); you may have to specifically check whether they have ever used English in a professional environment before (which may require familiarity with vocabulary they hadn’t needed before but could pick up quickly).
- Resume differences
LatAm resumes may take you a bit more time to review. They are not usually one page like US ones typically are. The tendency is to include as much information as possible, so someone with 20 years of experience might submit 4–5 pages. But this shouldn’t be a disqualifying factor.
Some people include information, such as a photo, address, marital status, and driver’s license number, that would be considered useless in most recruiting situations. Just find the information that is useful to you and disregard the rest.
We don’t feel any of these challenges are sufficient to prevent anyone from taking advantage of the benefits of nearshoring. But if you want to minimize them, finding a nearshoring partner that understands the LatAm talent market ensures the hiring process will be easy to navigate, removing potential sources of stress.
An expert nearshore outsourcing staffing or recruiting firm can help you figure out if nearshoring is right for you and what areas of your business would benefit from nearshore hiring.
The pandemic has left a lasting impact by demonstrating the viability of remote working for a wider range of positions than previously considered. This practice has now become so widespread that some question why it wasn’t implemented more frequently in the past. Businesses allowing remote work see a 25% lower turnover rate, saving resources on frequent hiring.
And once a company sees the possibilities and benefits that remote working offers, hiring from LatAm, where salaries are lower, becomes an obvious choice—the location of your remote team member is irrelevant if you are communicating over Zoom anyway.
Tie those benefits in with a tight labor market in the US, and there is no doubt that the nearshoring trend will only continue in popularity.
“Latin America has been and will continue to be the leading regional hotspot for nearshoring. With numerous International Organization for Standardization (ISO) certifications and more rigorous intellectual property laws than Asia...”
With a general trend of moving business from China to LatAm for several reasons — among those, supply chain issues and intellectual property protection — it’s not surprising that this is expected to continue. While that trend is more focused on manufacturing, it will spill over into business process outsourcing as well, firmly entrenching LatAm as a destination of choice for outsourcing.
Another trend is the rise in the popularity (or necessity) of outsourcing roles that are increasingly in demand with the growing digital transformation of companies. In their Global outsourcing survey 2022, Deloitte found that 96% of executives outsourced at least some of their data and analytics capabilities and 81% of their cybersecurity roles. The demand for talent in these areas will only increase, making nearshore hiring the smart choice for securing top talent with the necessary expertise in these areas.
Here are some of the most common questions US companies have when it comes to nearshore hiring: