It can be challenging to differentiate the terms outsourcing, nearshoring, onshoring, and offshoring; the concepts are quite similar but different at the same time. While nearshoring has significant benefits compared to other ways of doing business, it is vital to check if it is a good fit for a foreign company.
It can be hard to implement a nearshoring way of working in a quick snap of a finger. Let us uncover the nearshoring benefits and having Costa Rica in the map to make any company even more profitable and successful.
What is Nearshoring?
Nearshoring is an approach to business when a third-party company provides specific services from another geographic location, which is relatively close to the company’s area.
Nearshore happens when an organization decides to transfer work to companies that are less expensive and geographically closer.
A good example is when a business owner or corporate manager of any company decides to automate certain processes or start a new project out of the company. These projects may require in-depth IT, software development, RCM, contact center or manufacturing skills and knowledge among others. Companies are currently looking in other countries to start managing their projects in a seamless and cost efficiency ways and Costa Rica has a long-standing tradition and capability to attract these ventures, not only for its geographical situation, but also for the well know political, economic stability and education level of its people.
Costa Rican government offices such Procomer (www.procomer.com); CINDE (www.cinde.org) and COMEX (www.comex.go.cr) offer unparallel and worldwide recognized support to companies looking to localize its operation nearshoring.
Comparison with other business approaches
Nearshoring is transferring one or more of the company’s business operations to a nearby country.
Nearshoring versus Outsourcing
Outsourcing is a broader term than nearshoring. Nearshoring, offshoring, and onshoring are all types of outsourcing. Outsourcing is an agreement in which one company hires another company to be responsible for a planned or existing activity that is or could be done internally.
Outsourcing is a practice usually undertaken by companies as a cost-cutting measure. Also, the lack of knowledge in certain areas of expertise and the lack of in-house specialists can be the reason for outsourcing these activities to other companies. Often business operations such as customer support, accountancy, finance, insurance and medical customer services, manufacturing, revenue cycle management, marketing, and IT software development are outsourced. Usually, these companies are located at any of the Free Trade Regime zones throughout the capital city of San Jose, Costa Rica.
Many times, companies need to keep expanding their services, being more competitive or augment their staff or market scope and found that they lack knowledge and specialists in their field, so they decide to outsource them. Without the advice of trusted entity, partners, or service providers, they have a few options to choose from.
Nearshoring versus Onshoring
Onshoring is basically outsourcing to another city in the same country. Using this approach, companies do not face the risks of cultural differences or foreign taxing policies, not to mention they invest in their country’s economy. But they often must deal with a higher price range comparing to nearshoring or offshoring outsourcing options.
A clear example it is the cost of hiring a 7 to10 years’ experience IT Recruitment Specialist in Los Angeles at a cost of US$90.00 per hour; in Texas, same profile cost is US$65.00 per hour.
Nearshoring versus Offshoring
Offshoring is outsourcing business activities to countries with cheaper economies.
Offshoring takes advantage of cost differentials—companies using offshoring relocating their business activities from costly countries to cheaper ones.
For United States and Canada, offshoring destinations could be Asia (India, China, and Malaysia), Europe and some African countries.
Offshore outsourcing is considered the cheapest outsourcing option, which is the most significant advantage of this model. However, companies can encounter other challenges working with offshore parties as time differences, cultural differences, experience differences, language, legal and tax issues, distance, etc.
With the nearshoring model, companies in USA/Canada can still profit from the lower price compared to the onshoring model.
Advantages of Nearshoring
· Nearshoring saves time and energy
· Nearshoring is cost-efficient
· Working in the same time zone
· Easy communication and understanding
Nearshoring saves time and energy
A nearshoring company can start working on any company tasks within weeks, sometimes even days. Companies are not wasting time and money on recruiting and educating their in-house employees. There is no need to form a new department as the business activity was not present in the company before. The best specialists are chosen by client company and the partner providing nearshore services, and the team is train by their in-house specialists.
Nearshore teams are an excellent option to help companies scale up or scale down on-demand.
Nearshoring is cost-efficient
In most cases, it is far more feasible to work with a nearshoring partner rather than gathering a team of their own. Firstly, the costs mentioned above are the expenses connected to the recruitment process (job post advertisement and hours of work spent on the interviews). Second, the companies providing nearshore teams are based in the countries with lower hourly wages, which results in a reduction of costs for the company or project. Third, specialists in specialized companies are usually better educated and trained; they have the opportunity to exchange experience with their outsourced peers and grow their qualities and qualifications.
Working in the same time zone
One of the most substantial advantages of the nearshore business model, as opposed to offshore, is the time zone. Working in the same time zones leads to a more stable and productive workforce and, because of it – an expansion of work volume. Also, travelling between locations is far more simple and common under the nearshore model.
After the Covid-19, Costa Rica, as a nearshoring example to United States or Canada, have more than 20 flights a week from and to more than 10 gateways.
Easy communication and understanding
Communication is the key to successful collaboration. Team members’ interactions are made much more comfortable as they are happening in real-time. Good knowledge of a common language means clear understanding between parties and ensuring the result of work regarding the expectations.
Different work ethics in an offshore model makes project-oriented collaboration difficult. Work expectations, deadlines can be interpreted differently. Also, diversity in hierarchy systems can influence decision-making speed and, therefore, on the execution of the whole project. While cultural differences always exist, the common understanding of professionalism and efficient work requirements is pretty much alike.
Checklist “Is nearshoring right for your company?”
Even though, nearshoring has many advantages comparing to other business models, not all companies can benefit from it equally. Check this list to see if nearshoring is the right choice for your business.
· You need to build a new department or extend the existing one (staff augmentation)
· You get to use to the remote way of working
· You expect to save costs
· You know what you are aiming for
· You expect consistent quality
· You don’t compromise quality standards
· You are searching for experienced passionate specialists
· You do not want to waste time on hiring
· You want your team available in real-time
· You are for the fair hour-rates
If a company found itself in all these statements – nearshoring is an excellent opportunity for its business and Costa Rica the best option to start.
Miguel Lopez A. is Managing Partner at Recluta (www.recluta.org) a «boutique» talent management firm that helps US/Canada and foreign companies to «soft landing» in Costa Rica. Currently managing several projects under the outsourcing (BPO/BOT) model. Solutions are crafted with the company’s managers to tailor-made their best option.
Linkedin profile: www.linkedin.com/in/miguellopeza
Offices located in San Jose, Costa Rica. Edificio Latitud Yoses, suite 404.
Contact +150622345052 +150622345829 +150687240752