When it comes to IT companies making decisions on where to base their headquarters, there always comes the question of whether you should be nearshoring or offshoring and whether it’s for cutting costs, managing time, resources or human resources. However, the decision is never easy and this guide will aim to help you make that important decision by giving you the pros and cons of both of these structures, so let’s get started.
Offshoring refers to basing your IT sources in a different country, like a US company basing their workers from Europe. Other good offshoring places are China and India, mainly for the cheaper labor costs.
Offshore Outsourcing Pros:
- One of the well-known and most prominent pros of offshoring outsourcing is the cheap labor cost stemming from fewer regulations, different standards, wage gap and abundance of the work force, allowing a company to employ more workers and finish more projects for a lesser cost.
- Another benefit of offshoring is the time difference, allowing a company to offshore to two or more countries and shift a project around to achieve maximum efficiency and meet tight deadlines by enabling around the clock work, by starting a project, and when the working hours of one location ends, they shift the project to another location where the working hours are just beginning.
A major risk when working offshore is political instability, which can be unpredictable and greatly disrupt the progress and workflow of a company. Also, natural disasters can be devastating for companies that outsource because those countries have little to know means to combat this problem. Copyright protection can also be a big problem for companies that offshore, since the laws and regulations in countries where they offshore from tend to be less rigid and enforced, and that can lead to intellectual property theft with few if any re-precautions.
Nearshoring refers to gathering workforce closer to home, but is not guaranteed to be from the same country. It can be from a similar time zone, language or culture.
Nearshore Outsourcing Pros
- One major benefit of nearshoring is the shared time zone, making it easy to clear up problems and misunderstandings on the go, without losing time with such problems, but just pick up a phone and solve the problem in a matter of minutes.
- Cultural differences tend to be a less problem with nearshoring, and communication can be greatly increased, as well as trust and collaboration, while also making face to face meetings easier and more efficient than offshoring.
- The first con that comes with nearshoring can be the increased labour cost, stemming from the similar wage gap that nearshoring countries share.
- Flexibility can also be a problem since offshoring limits the number of potential places one can turn for when scouting.
So, when we boil everything down, offshoring and nearshoring have its own pros and cons and either one of them can be an ideal choice, and in the end, it is up to the company to decide whether to use offshoring, nearshoring or a combination of both to ensure optimal progress and performance that will benefit their company in the best way.