The debate between nearshoring vs offshoring plays a crucial role in the strategic planning of many U.S. businesses. Each outsourcing strategy has strengths and weaknesses that companies must consider before choosing one.
The World Economic Forum defines nearshoring as outsourcing business operations to a nearby country. Offshoring is a way of outsourcing company functions to countries further away, typically overseas. Nearshoring gives businesses access to more skilled labor, while offshoring allows them the opportunity to use cheaper products.
We’ll go over the intricacies of nearshoring vs. offshoring and the advantages of using each outsourcing strategy.
Nearshoring is a method of outsourcing certain business operations to a country that is geographically closer to the host country. Due to the logistical challenges that can occur when goods are imported from far away nations, many U.S. business have begun using manufacturers and suppliers in locations closer to home.
Logistically speaking, nearshore vs offshore outsourcing is extremely beneficial for U.S. companies.
These advantages include:
Each of these benefits resolves the problems faced by companies who offshore their supply operations.
One nearshore outsourcing advantage is the speed at which goods arrive. Companies that receive goods from countries that are geographically closer to the one they reside in will enjoy shorter transit times. There are fewer obstacles that can lengthen transit times for imported goods when they travel from a nearshore country.
Businesses can receive their products via truck or rail if it’s coming from a nearshore country that shares a border with the United States. This allows American companies to bypass all the delays that come with shipping by sea.
Lastly, nearshore manufacturers and suppliers are usually in the same time zone as U.S. businesses. In other cases, a nearshore partner may be a few hours ahead or behind. This allows U.S. importers to easily schedule the arrival of their shipment.
Many nearshore nations have a diverse talent pool. The education systems in these countries align closely with U.S. standards. This means professionals in these nations often possess qualifications and training that are comparable to their U.S. counterparts, ensuring a high level of competency.
Nearshoring provides U.S. businesses with easy access to these diverse talent pools. This proximity allows for more straightforward recruitment processes and opportunities to tap into specialized skills that may be scarce domestically.
Transporting goods from a country that is closer in geographical proximity is also cheaper compared to importing from a nation half the world away. One reason for cheaper shipping costs is due to the geographic closeness of a nearshore country.
Shipments that travel a shorter distance don’t burn as much fuel. As a result, transport costs are much cheaper. Another reason for reduced shipping expenses is due to the good trade relations the U.S. has with its neighbors. Thanks to Free Trade Agreements (FTA), businesses can import their goods at a preferential rate.
Communication can be a challenge businesses have to deal with when they conduct business with offshore manufacturers. Fortunately, this isn’t as much of a problem with nearshore suppliers. For example, English is one of the primary languages in Canada. This will make communication between U.S. importers and their Canadian counterparts easier.
Interactions with Latin American countries won’t be difficult either. Spanish is the primary language in most of these nations. However, this is a common language in the U.S. as well. Companies that use Latin American suppliers or manufacturers only need a translator to accurately communicate.
Nearshore countries also have a culture that’s similar to U.S. businesses. Therefore, it’s easier for expectations to be communicated between different parties, which leads to productive business relations.
Offshoring is essentially the complete opposite of nearshoring. Rather than outsourcing to a country geographically closer to your country, offshoring outsources operations that are typically overseas in far away countries.
Currently, China is the country of choice that U.S. companies use to outsource their operations. While offshore countries are usually further away, many U.S. businesses import products from manufacturers and suppliers in these nations.
Offshoring might not be the most useful method of outsourcing manufacturing or supply operations when the supply chain is wrought with delays. However, there are still many benefits of using offshoring that can help a business.
These advantages of offshoring are a big reason why so many U.S. companies prefer to use supplier and manufacturers half the world away.
While there are many types of products that can be imported from countries close to the U.S., there are many others that are only accessible from nations that are further away. This is one benefit of offshore vs nearshore outsourcing.
Far away countries, such as China, have resources that nearby nations might be lacking. Offshore partners may also have access to better facilities and use reliable manufacturing strategies. This ensures U.S. businesses that the goods they import will be top quality.
Importing from suppliers in nearshore countries is cheaper because of the short distance goods have to travel. However, receiving goods from an offshore manufacturer can also be cost-effective for U.S. businesses. Many of the products made in offshore countries are much cheaper than ones produced in nearshore nations.
This helps U.S. importers offset the costs of the long ocean voyages their products will have to travel. China is frequently used as an offshore country that makes more affordable goods. That said, there are many other nations in Asia that have reliable suppliers.
This offshore outsourcing advantage allows U.S. businesses can import cheap products from suppliers in these countries.
Another offshore outsourcing advantage are the incentives that U.S. companies can use. Many of these far away countries are considered developing nations. Since these nations are eager to improve their economic standing, many of them welcome foreign businesses that are interested in conducting operations in some capacity.
As a way to attract more business within their borders, certaincountries offer tax breaks and other financial incentives to foreign companies. Factors like these make offshoring operations to another country more feasible for businesses and business owners.
Setting up outsourcing operations in these will also allow companies to set up a foothold in the chosen nation. Expanding into an international market can be beneficial to your business for the following reasons:
With your business reaping these benefits of offshoring, you’ll company will reach a height that wasn’t previously possible.
Nearshore vs. offshore outsourcing each have unique benefits. That said, each method of outsourcing is good for certain situations. Nearshoring is the best option to use when you have to abide by strict time constraints. Importing goods from these countries doesn’t take as long as it would from an offshore company.
Additionally, nearshoring is a great option when the supply chain gets backed up and shipments from overseas start to become delayed. The importing process will go much smoother when importing from a nearshore company thanks to FTAs.
Offshoring makes for a great option if you don’t have the money to outsource to slightly more expensive nearshore companies. Thanks to this method, businesses will be able to hire skilled labor to make products with quality materials at a lower cost. Incentives from the host government where offshore operations take place will reduce costs for businesses.
Regardless of which option you choose, outsourcing isn’t going to go away anytime soon, as the table below shows.
|Percent Of Jobs That Are Outsourced For Cost Reduction
|Percent Of Small Businesses Outsource For Efficiency
|In 2019, the Entire Global Outsourcing Market Had A Value Of
|Likelihood of A Company To Outsource
|Larger businesses are 66 percent more likely to outsource than smaller ones
Knowing when nearshoring vs outsourcing should be used is extremely important. As long as both are used correctly, companies will reap the benefits.
Nearshoring and offshoring have their unique advantages. Regardless of which one you decide to use, you’ll need to consider transportation and warehousing for the products made by your third party suppliers. At Product Distribution Strategy, we offer different kinds of consulting sessions to navigate these concerns.
We recommend taking advantage of the following sessions:
With these sessions, you’ll have the information you need to transport and store the products manufactured in a nearshore or offshore country. Schedule your consulting session today, or contact our team at (855) 863-7672 to learn more about what we have to offer.