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Outsourcing has become a vital aspect of many businesses to the point that its 2030 market value is projected to amount to $525.23 billion USD.
In a quest to cut costs while maintaining production quality and competitive advantage, nearshore vs offshore outsourcing becomes a subject of debate among US business owners. There’s no right or wrong outsourcing model, but it’s a matter of weighing which one is the better option for your needs.
This guide teaches you about nearshore vs offshore outsourcing, starting with the definition of each model, followed by their pros and cons.
What Is Nearshore Outsourcing?
Nearshoring is a type of outsourcing wherein a company partners with a service provider in a nearby country to perform outsourced tasks. In this case, a US-based business owner will collaborate with a nearshore BPO company in Mexico, Colombia, or Jamaica due to the proximity of these countries to the US.
This is different from onshore outsourcing, as it involves outsourcing to a vendor in the same country as the client. Nearshore outsourcing can be used as an entry point to offshore outsourcing.
Pros of Nearshore Outsourcing
Nearshore outsourcing is the right balance of proximity, cost savings, oversight, and cultural and linguistic compatibility. Let’s explore these benefits below:
There Is A Better Time Zone Overlap
One of the best advantages of nearshore outsourcing is the greater time zone overlap. When you work with a nearshore team, you won’t experience significant delays in communication due to minimal time zone differences.
Let’s say you’re a business owner in California, US, who’ll outsource customer service to Colombia. The time difference between the two countries is two hours. This means your Colombian nearshore team can offer near-real-time support during your business’s operating hours, leading to higher operational efficiency and faster response times.
Because there are fewer conflicts in schedule and time, you can easily set meetings and feedback sessions with your nearshore partner.
You Can Save More With Nearshoring
Cost savings are another advantage of nearshore outsourcing. If you’re hiring locally, the cost of hiring can be as high as $4,683 USD per employee and $28,329 USD per executive-level hire.
Again, let’s say you're hiring a customer service agent. A Colombian and Mexican customer support agent earns $8,640 USD and $19,300 USD each year, respectively. Meanwhile, a US agent costs $69,139 USD annually. In this case, the better choice would be either Colombia or Mexico, both of which have lower average salaries than the US.
Hence, you can save more while enjoying the greater efficiency, tighter communication, and better cultural compatibility that come with nearshore outsourcing.
You Can Work With Culturally and Linguistically Compatible Professionals
Speaking of which, cultural and linguistic compatibility are integral to nearshoring. To begin with, the US and Latin America share a common history, specifically immigration — which played a significant role in shaping US culture, from values to cuisine. Hence, it’s not surprising for Latin American professionals to easily adapt to US business practices and communication styles.
Additionally, Latin American countries are fluent in English. According to the Education First English Proficiency Index (EFEPI), Suriname and Argentina are the countries with high English proficiency, scoring 563 and 562 points, respectively. Interestingly, Spanish is one of the most common spoken languages in the US, with 42 million speakers.
By nearshoring, companies can hire bilingual professionals who are fluent in English and Spanish to deliver bilingual support and culturally connect with Spanish-speaking customers.
You Have Better Oversight of Your Nearshore Team
The beauty of nearshore outsourcing is having better control of your nearshore staff. In outsourcing, correspondence is done virtually. But because your nearshore team is just a flight away from the US, you can conduct regular in-person visits and meet everyone in the flesh.
This way, you can personally see how your staff is faring well in their tasks. Face-to-face meetings will also allow you to interpret non-verbal cues and experience seamless communication without being bothered by audio, video, or connectivity issues. Urgent issues can also be addressed without the risk of miscommunication or misunderstandings.
Since you have better oversight of your nearshore staff, you can strengthen camaraderie, build trust, and form a more authentic bond with all team members.
Cons of Nearshore Outsourcing
Despite the above benefits, you have to prepare for the following risks when nearshore outsourcing:
There’s A Risk of Political Instability or Natural Disasters
Political instability and other unforeseen circumstances are outside of your control. However, these can disrupt operations and affect overall productivity.
While not all countries in Latin America (or the Caribbean) experience the same level of political instability, we recommend reading up on current events and analyzing a country’s political climate before nearshore outsourcing.
Likewise, natural disasters can pose a threat to your outsourcing efforts. The United Nations Office for the Coordination of Humanitarian Affairs (OCHA) and the United Nations Office for Disaster Risk Reduction (UNDRR) found that Latin America and the Caribbean is second only to Asia and the Pacific as the region most affected by disasters.
In fact, from 2000 to 2022, 1,534 disasters have already affected 190 million individuals in Latin America and the Caribbean. The region’s disaster proneness is attributed to climate change, poverty, mass immigration, and other factors. Hence, always choose a nearshore BPO partner with a strong business continuity plan.
Some Roles May Be Challenging to Source
Latin American and Caribbean professionals excel in many fields, including back-office support, customer service, IT, and many more. However, you might find it harder to source professionals in highly specialized roles since you’re limited to only Latin America and the Caribbean. Hence, you might have better luck if you expand your search to include Eastern Europe and Asia.
What Is Offshore Outsourcing?
Between nearshore outsourcing and onshore outsourcing, offshore outsourcing is the most popular of all models. The offshore model is the practice of collaborating with an outsourcing company in a distant geographical location (Think, Southeast Asia). When a company in North America decides to outsource accounting to the Philippines or Malaysia, that’s offshore outsourcing.
Pros of Offshore Outsourcing
Offshore outsourcing is touted for its cost savings, access to skilled professionals, round-the-clock support, and potential for market expansion. This section tackles these benefits in more detail:
You Can Enjoy High Cost Savings
Like nearshore outsourcing, you’ll also get high cost savings from offshoring. To illustrate, let’s compare the average annual salaries of a graphic designer in the following countries:
- USA: $75,000 USD
- Mexico: $3,384.69 USD
- Colombia $6,575.18 USD
- Philippines: $4,330.45 USD
- Malaysia: $7,398.93 USD
Based on the above data, it’s easy to see why offshoring (and nearshoring) appeals to companies. Since developing countries have a lower cost of labor and living, they make attractive outsourcing destinations for developed countries. More cost savings translate to more resources for future business endeavors.
You Have More Options
With offshore outsourcing, you have more options on your plate. Rather than limiting your talent pool to Latin America and the Caribbean, you can now hire skilled professionals from Eastern Europe and Asia.
If you’re looking for IT expertise, you have India, Poland, and Ukraine. These countries are IT hubs because of their skilled tech talent and advanced infrastructure.
For customer service, you have the Philippines. Apart from being the BPO and call center of the world, its colonial history has produced college-educated professionals who can write in fluent English, speak in a neutral English accent, and adapt to Western workplace culture.
You Can Hire Offshore Employees for Round-the-Clock Productivity
In terms of time zone alignment, offshore outsourcing offers the best of both worlds of real-time and round-the-clock support. The US has multiple time zones that synergize with Asian time zones. Imagine you have a company in Atlanta. If you outsource to the Philippines, there’ll be a 12-hour time difference. If it’s morning in the Philippines, it will be nighttime in Atlanta and vice versa.
For companies that require round-the-clock support, time zone differences are a game-changer. Even if the rest of your in-house team is asleep, your offshore team is awake and busy accomplishing the day’s tasks. By the time your offshore employees clock out, all deliverables are ready for your review. This ensures fast, seamless turnaround times.
Time zone differences are also an advantage for outsourced customer service. By covering after-hours support, your customers can access your business’s customer care without waiting until the next business day.
Alternatively, your offshore team can work the graveyard shift to align with your business hours — that is, if you prefer real-time support. BPO companies operate all year round for 24 hours, so you won’t have problems building a dedicated offshore team that can work in the same time zone as yours.
You Can Explore New Markets
Since offshore teams handle administrative tasks, you have more time and resources for strategic initiatives. That’s why offshore outsourcing is an avenue for market expansion. When you outsource to an offshore destination, there’s always that untapped potential to explore a new market and scale your market share.
Outsourcing companies can conduct market research and offer fresh ideas to help you appeal to the local market as well as enhance your brand visibility.
Cons of Offshore Outsourcing
On the other hand, here are the possible challenges you may encounter when offshore outsourcing:
There Are Potential Barriers to Communication
English is a universal business language. While your offshore team is proficient in English, there might still be barriers to communication due to differences in accents and cultural nuances. Misunderstandings may arise during important meetings, causing potential conflict between you and your offshore employees.
Cultural compatibility is also integral to smoother collaboration. When both in-house and offshore teams don’t learn about each other’s cultures, it becomes another source of conflict and miscommunication that can deteriorate the partnership.
Your outsourcing strategy should involve learning the culture of your offshore team’s country. For example, Filipinos prioritize harmony and hence avoid conflicts or disagreements. It’s important to create a safe space where your Filipino team can share their thoughts without judgment.
At the end of the day, outsourcing is about learning and adjusting to each other’s cultures to ensure a harmonious partnership.
You Can Experience Quality and Performance Issues
Unlike nearshore outsourcing, offshore outsourcing makes in-person visits less frequent due to travel costs, so you don’t have direct oversight over your team’s performance and productivity.
However, quality and performance issues only become a problem when you don’t have clear metrics or regularly communicate with your team.
To avoid such issues, dedicate one day (or two) of the workweek for catch-ups and feedback, and create concrete metrics to keep your team accountable for their performance. This ensures better alignment in expectations, standards, and goals.
When to Choose Between Nearshore vs Offshore Outsourcing
Choosing between nearshore vs offshore outsourcing can be a tough decision for any first-time (or seasoned) outsourcer. Thankfully, the list below will help you settle on a decision:
Choose Nearshore Outsourcing If:
- You Value Real-Time Collaboration: Working with a nearshore BPO company enables your team to resolve urgent matters much faster.
- You Prioritize Cultural Compatibility: A nearshore partner who shares similar values and business practices minimizes the risk of miscommunication.
- You Want Regular In-Person Visits: You can save on travel costs if your nearshore partner is in a neighboring country.
Choose Offshore Outsourcing If:
- You Want 24/7 Support: Offshore outsourcing companies can help you build teams for round-the-clock support.
- You Need Highly Specialized Global Talent: This outsourcing option increases the likelihood of finding highly specialized professionals for your business.
- You Prioritize DEI (Diversity, Equity, and Inclusion): Hiring offshore talent from different countries can help meet your DEI goals.
- You Need to Cut Your Spending: Both nearshore and offshore outsourcing promise lower labor costs. But if you want to maximize cost efficiency while increasing your access to talent, opt for offshore outsourcing.
Make KDCI Outsourcing Your Outsourcing Partner
Offshore outsourcing is a strategic venture for US business owners to diversify their workforce, harness untapped markets, and slash labor costs. If you’re on the market for an outsourcing partner, choose KDCI Outsourcing.
Based in the Philippines, KDCI Outsourcing is a BPO company offering personalized staffing solutions for offshore software development, human resources, accounting and finance, administrative support, and many more.
Backed by a pool of skilled professionals and cutting-edge technologies, we deliver world-class outsourcing services that drive real growth and operational efficiency to your business.
Outsource tasks (or better yet, your whole department) to KDCI. Get in touch with our outsourcing experts to learn how!
