Offshoring, Nearshoring or Reshoring?
When you want to know how to structure your business as it grows it can be hard to understand where to start. Of course, you need a viable long-term strategy, but with so many buzzwords bouncing around where do you begin your search?
To make things nice and easy for you we’re going to take a look at 3 of the key concepts that you need to know about. That way you’ll be able to make the smart choices that are in the best interests of your business. All while being safe in the knowledge that you’ve got a clear understanding of what your options are.
Offshoring: Everything You Need to Know About Venturing Abroad
Offshoring is where you move some of your vital functions overseas to streamline operations. Typically, this is done in conjunction with a third party service provider operating in a country with a significantly lower cost of living. The difference in the wages between the overseas state and your own country allows you to save money on one of your most significant overheads — wages.
Offshoring is an approach that has been commonplace for some years, but it is not without its potential downsides. As many UK banks have found over the last ten-years the cultural and language barriers created by offshoring customer support can be seen as negative by the customers themselves.
That has led to some organizations bringing their activities closer to home. There are two ways in which that is possible. And we’re going to discuss both of them in detail now.
Reshoring: Bringing Your Business Back Home
Reshoring is a simple concept to get your head around. All it entails is bringing parts of your business that were formerly offshored, back into your native country. Some people will see this as an admission, that offshoring saves money, but causes damage to brands due to a drop in service quality. It is, preferably, to run with a lower margin than it is to try and fight against the tide of a disgruntled customer base.
In reality, it is a pragmatic step to take to protect your brand and make sure that your business has full oversight of what’s going on. That said, there is the drawback that you now have to employ full-time staff who will most likely occupy permanent positions at your head office. Of course, this isn’t the most agile approach to take, which, is where the most flexible and lean of the three key concepts come into play.
Nearshoring: Customer Service Meets Lean Operation
The smart thing about nearshoring is that it combines the best bits of offshoring and re-shoring, and does away with the bits that you’d happily do without. It sounds like its too good to be true, but nearshoring is now a common practice for businesses all over the world. So, what is it?
Nearshoring refers to the outsourcing of essential business functions to third-parties in nearby countries. These countries will typically have the same, or very similar, cultures to your native area due to their proximity. That means any language and cultural barriers are a thing of the past straight away.
The thing you may be wondering is, how it saves you any money? Neighboring countries tend to have very similar costs of living due to cross-border trade and close cultural ties. But what you haven’t factored into the equation is the lean element. By hiring workers on an ad hoc basis from a trusted third-party, you only pay for the expertise you need, when you need it.
That way you never have to worry about creating permanent positions and all the overheads that come with them. All you need to do is find the right person for the task at hand and concentrate on getting it done on time.
Which Approach Works For Me?
Each of the three approaches that we’ve outlined will work for your business, but the results will be varied. If you want to make your business as cheap to run as possible, then offshoring will often be the way to go. But you need to be careful about cutting your costs too much. If your customers find it hard to do business or converse with your hired help, then this may deter your customers off from staying with you. Worse still, their disgruntlement may lead to your brand becoming tarnished in one way, shape, or form.
Reshoring is always a safe bet because you can personally vouch for the working practices in your own country. You know what you’re getting, and it will be easy to align your expectations with the output of your workers.
What it won’t do; however, is save you all that much money because you’ll likely create permanent positions. While a permanent employee is great, in the sense that you never have to look for someone again once you’ve hired them. They do come with baggage and overheads which can reduce the agility and flexibility of your business.
The best approach is to consider nearshoring as it offers the best of both worlds. By being able to save money by using ad-hoc assistants on an as-needed basis, you’ll be able to increase your margins. And because of the close cultural ties to the neighboring country in which they’re located, it’ll be easy for your customers to do what they need to do. Not only that, but it’ll also be straightforward for you to align your expectations with their output.
Making the Smart Decision
As with everything in business, there is rarely a definitive correct answer that offers no downsides. Getting things done is as much about compromising and balancing objectives as it is about what’s best for your business. To make the right decision, you need to consider the merits of the customer experience in one hand. And the possible financial savings to boost your margins on the other. Once you do that, it will be obvious which way you should proceed.