To Offshore or Nearshore? That Is The Question!

In recent years, outsourcing has emerged as a viable means for an organization to contract out a business function, that was previously performed in-house, to an external vendor/provider. The functions targeted can include areas such as business, knowledge or engineering processes, among others. Typically, an organization seeks to outsource in order to realize certain business benefits such as:

  • Cost savings (e.g. lower taxes, cheaper labor, etc)
  • Quality improvement
  • Reduced time to market
  • Capacity management
  • Risk management/mitigation
  • Scalability

During the late 90s and early 00s, there was a definite boom in offshore outsourcing a/k/a offshoring where mega-corporations were able to take advantage of large resource pools in lower cost economies due to an extremely disparate gap in wages that existed between the industrialized nations seeking to outsource and the developing nations providing the services. It was not uncommon to see companies like HP outsource their entire customer support operations to call centers in Hong Kong, Shanghai or Bangladesh. When planned effectively, those kinds of strategic business decisions have shown the potential to reap generous dividends on a relatively low-cost investment.

In the US, there has always been mixed emotions/views on outsourcing. Opponents claim it leads to job displacement, especially as it relates to offshoring. Supporters argue that offshoring actually lowers prices thereby yielding a greater overall economic benefit. Regardless of the position taken, the decision to offshore often carries its own set of consequences and repercussions that must be accounted for and dealt with such as:

  • Physical distance (ie, geographic proximity, time zones, etc)
  • Quality of service
  • Language/cultural barriers
  • Security issues
  • Governmental policies/restrictions

Considerations like these coupled with the recent global economic downturn and the proliferation of cloudsourcing have cooled the heels of the once agressive business strategists to take a slower, more stable approach to offshoring in particular and outsourcing in general. This change in landscape, attitude and strategy has given rise to alternatives like nearshoring and as a result, has seeded socio-economic growth in neighboring countries like Brazil, Chile, Canada and Mexico.

What makes nearshoring appealing is that it allows an organization to mitigate several of the concerns/risks associated with offshoring while still reaping the benefits that an outsourcing strategy provides. By providing increased flexibility for organizational alignment, nearshoring can be an effective means to increase ROI.

Eventually, business strategists may shift back towards insourcing as some analysts suggest. This will especially become true as the once developing nations become more industrialized and the labor cost savings increasingly diminish. Would that signal the death of outsourcing? Hardly. I believe outsourcing is here to stay and will see increased/decreased implementation as market and economic conditions dictate. What do you think?

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