What are Nearshoring and Offshoring?
Nearshoring and/or offshoring production is fundamentally the practice of relocating a business process or part of a business in a different country.
In an extended attempt to minimise expense many companies opt to utilise out of country outsourcing which can be divided into two categories which are nearshoring and offshoring. For example, due to material and production costs many fashion retailers will utilise production factories in China and the Far East to produce their garments.
Both options enable the company to the services of an outsourcing provider or they can undertake the process themselves. However, they are very different and which one is relevant is dependent on the goals of the organisation.
What is Offshoring?
The term offshoring refers to the relocation of a process by a company to another organisation that is situated in a location that is much further away. This could be for a number of reasons, but generally it is implemented in order to keep costs lower. In countries such as China and India costs such as wages can be significantly lower than those in Western countries.
The benefits of Offshoring mean that companies can reallocate processes in order to spend more time and resources on the innovation, growth and overall future of their business. This can allow for a focus on being more competitive and strengthening their position in the market.
There are, of course, some disadvantages to and it is dependent on the goals for Offshoring. For example, if you are looking to outsource our customer service department then this can raise issues such as cultural, time and language differences which can impact the process and potentially your reputation.
What is Nearshoring?
Similar in concept to Offshoring, Nearshoring means that an organisation has chosen to outsource processes to another company or organisation that operates within the same region. For example, for a UK organisation, Europe would be considered a nearshoring region and many companies would prefer to outsource within this area for particular protection and security such as that from Data Protection laws.
By using Nearshoring, businesses can operate in a more cost-effective way whilst keeping operations fairly close and avoiding large time differences or cultural and language barriers. This means it can suit almost any process within the organisation. The close proximity lowers travels costs between the locations, time efficiency during critical decision making and ultimately more control when overseeing processes.
It can obviously be difficult at times to manage a remote team, but the 2020 pandemic has shown us that this will be a more credible way of working into the future. However, depending on which option of shoring is opted for and for which process it is implemented, will determine the kinds of issues that may arise.
Though outsourcing can indeed lower costs it can add them too with greater need for management, travel costs between locations and data protection issues. Therefore, deciding whether Offshoring or Nearshoring is right for your organisation is not straightforward to determine. It will require a great analysis of the benefits and costs involved and the goals you wish to reach within your business plan.
As International freight management specialists, the Xpediator Group provides businesses with tailored end to end supply chain solutions for the UK and Europe.
Our Global supply chain service solutions overcome both offshoring and near shoring logistics challenges, reduce complexity and will give you greater control of your supply chain.
Contact us today to see how we can help your business.