Choosing the Right IT Outsourcing Model: Offshore, Nearshore, or Onshore?
The nucleus of outsourcing lies in transferring the task to an external organisation while setting the sights on smoothening internal operational functions. For instance, a business settled in North America collaborates with a team in South Asia to streamline efficient solutions by leveraging global talent.
Of late, the prominence of outsourcing has augmented to its highest degree, with businesses outsourcing around 68% of the functional requirements. Apart from the costing angle, the varying types of outsourcing- offshore, nearshore, and onshore, have played a notable role in widening its scope.
Such a multifaceted nature of outsourcing confuses the companies and they often end up choosing the wrong type for their business. This can potentially lead to a dent in the revenue, not to mention the sheer wastage of global expertise.
The following blog elaborates on the differing types of outsourcing and how your business can leverage a helping hand in achieving success.
Offshore outsourcing is the practice of recruiting a third-party organisation to perform principal and cardinal business operations in a different country. Low-cost regions are specifically selected for offshore outsourcing to reduce costs and engage the best talent from across the globe.
Inspiring Examples of Offshore Outsourcing:
The founders of WhatsApp offshored its services to developers based in Russia in its early days of inception for cost reasons.
Google outsources a significant amount of operational functions across the globe, outnumbering their in-house employees.
BigCommerce outsourced its IT tasks to Eastern Europe, owing to the storage of IT professionals in the West.
Why Choose Offshore Outsourcing?
Finding low-cost labour markets in other countries where wages and operational expenses are comparatively lower is one of the primary reasons for offshore outsourcing.
Specialised Skills and Efficiency
Companies can tap into a global talent pool and access skills that might not be readily available in domestic areas. Moreover, companies can focus on their core competencies and strategic goals while the business processes are outsourced.
Extended Business Hours
Businesses can leverage the time zone differences to extend their operational hours and enable the business to reach a larger scope of audience.
Offshore outsourcing can aid the company in expanding into new markets by establishing a presence in other countries and imbibing valuable insights into local markets and customer preferences.
Nearshore outsourcing is the practice of recruiting a team of employees from neighbouring countries instead of the organisation’s home country. The external vendors are from nearby countries which effectively cuts down the struggle of dealing with time zone and cultural differences.
Inspiring Examples of Nearshore Outsourcing
Zara nearshored its production to Turkey and Morocco to replenish inventory.
Whirlpool established nearshoring manufacturing units in Mexico to reduce transportation costs.
Toyota Motors established its second production facility in Thailand to enable work class connectivity.
Why Choose Nearshore Outsourcing?
Time zone compatibility is one of the most significant benefits of nearshore outsourcing as it facilitates team management without having to deal with irregular work schedules. Moreover, there isn’t any vast cultural, mindset, or language difference that could potentially pose a hindrance to the business.
Cuts Travel Costs
If a business longs to set up a manufacturing unit through nearshore outsourcing, the travel costs are remarkably cut down due to the geographical proximity between the service provider and the company.
Similar Legal and Regulatory Frameworks
Working with teams in countries that have similar legal and regulatory frameworks helps mitigate risks associated with compliance issues. Moreover, it provides a sense of comfort regarding the protection of sensitive information.
Valuable Market Insights
Gaining esteemed market insights from nearby countries is more of a straightforward process, given the lesser deviances in the foundational understanding. This supports better modifications and customizations of products/services and market expansion efforts.
Also known as domestic outsourcing, onshore outsourcing is the process of obtaining services from a team or organisation situated in the same country but outside of the company. As compared to offshore outsourcing, onshore outsourcing is considered to be more of a straightforward process due to similarities in customer experience and legalities.
Inspiring Examples of Onshore Outsourcing
IBM availed the advantages of onshore outsourcing by partnering with domestic service providers for customer support, IT services, and consulting.
Ford Motor Company collaborated with domestic IT service providers to develop and maintain software systems.
Target utilised onshore outsourcing and partnered with domestic logistics and transportation companies to manage the distribution and delivery of products within the geographical boundaries of the country.
Why Choose Onshore Outsourcing?
Cultural and Language Alignment
With onshore outsourcing, the shared cultural norms, business practices, and languages smoothen the communication process. This, in turn, facilitates faster business processes and reduces the likelihood of misinterpretations and delays.
Compliances with Local Regulations
Greater confidence in the provided services or products is levied with local regulations and similar customer preferences. Moreover, it also heightens the possibility of risk mitigation associated with varying quality levels, intellectual property rights, data protection policies, etc.
Support for the Local Economy
Partnering with domestic service providers creates more employment opportunities for the country, thereby promoting economic growth and fostering a sense of social responsibility.
Immune to External Disruptions
Working with a service provider that resides in the same country helps reduce risks associated with geopolitical instability and natural disasters. This keeps the critical functions in control while reducing vulnerabilities to external hindrances.
Offshore, Nearshore, or Onshore- Which IT Outsourcing is Right For Your Company?