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Also known as nearshore outsourcing, nearshoring is the business process of outsourcing certain company functions to facilities that are located in nearby countries. The relatively close proximity between the client and the outsourcing provider make it easier for the two parties to interact face to face occasionally, and in some cases may also aid in reducing the potential for cultural or language barriers to negatively impact the working relationship between the two. While there are exceptions, nearshoring often requires that the outsourcing involve the engagement of services offered by a company based in an adjoining nation.
A number of factors will be involved in the establishment of a nearshoring approach. Along with relatively close geographic proximity, factors such as the respective time zones of the two parties may be important. This means that a company based on the Pacific Coast of the United States may prefer to outsource to a provider who is based along the western border of Mexico. At the same time, a US-based company that is located in Chicago may prefer to outsource to a Canadian partner who is also located in the central time zone.
Language and culture may also have some impact when it comes to nearshoring. This is particularly true when it comes to outsourcing functions such as customer service and support. Since language differences can be a barrier to the communication process, a company may choose to outsource the function to a locality in that neighboring country where the language used by the majority of the company’s customers is also spoken by those who will provide the customer service and assistance. Doing so minimizes the possibility of customers becoming upset with the inability to communicate effectively with a service representative and choosing to end the business relationship and go with the services provided by a competitor.
As with any type of outsourcing, the idea behind this strategy is to reduce operational costs while still retaining an acceptable level of service. Nearshoring is often practical when the approach will allow the customer to operate efficiently with a smaller in-house staff, while still providing the perception by customers that all the contacts taking place are being performed in-house. Assuming that the savings generated by nearshoring are sufficient to offset the costs and allow the company to still operate at the same or higher level of efficiency, this type of business tool is well worth consideration.
I work for a company based in San Antonio that makes auto parts and select other machine parts. I will refrain from mentioning their name here in order to protect the image of the company. We have a pretty big operation in the US but over the last decade we have outsourced some of our operations across the border to Mexico.
The reasons are probably obvious. It is significantly cheaper to produce our goods down there because labor and regulatory costs are so much lower. We have been able to reduce operational costs by huge margins just by shipping some of our more basic manufacturing tasks south of the border.
Some people did those their jobs but who knows how many more were able to keep theirs because the company is on stronger footing now?