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Nearshore Outsourcing - The Twist In The Tale
By Thomas Peter, Fri Dec 9th
A few days back it was off-shore outsourcing that was making thewaves and now it is near-shore outsourcing. Not a very newphenomena except for the term; near-shoring involves shiftingwork to people in neighboring countries rather than to distantoff-shore locations. Discussed in this article is the new trendof near-shore outsourcing and its future implications. The near-shore outsourcing trend (Article continued below)
To a large extend outsourcing meant shifting of back-endoperations to cheaper off-shore destinations like India,Philippines and China. But the trend seems to be changingswiftly. Businesses today look more concerned about security andstability rather than mere cost savings and this is why most ofthem are adapting to the new wave of near-shore outsourcing.Proximity for travel, cultural affinity and developinginfrastructure are a few other reasons for near-shoring gettingthe boost. Relatively lesser known outsourcing destinations likeMexico, Canada, Costa Rica, Romania, Slovakia and Chez republichave chances of emerging as major winners of this new trend inthe years to come. Discussed below are the major factors thatmay be responsible creating this twist in the tale. Major factors in aid of near-shore outsourcing 1.) Cultural Link The cultural link factor is a major plus in aid of near-shoreoutsourcing. Countries located in near-by locations are likelyto have a similar cultural background than off-shore countriesand many businesses today find this to be an important factor.Most are of the opinion that having a close cultural link helpsin reducing common problems and conflicts that can arise whenteams having differing cultural backgrounds work together. 2.) Proximity and time zones Proximity is another big factor that favors near-shoring.Business travel to neighboring courtiers is much cheaper,quicker and can even eliminate the need for procuring visas orother documentations. Proximity also means better and cheapercommunications, faster work and better understanding. Inaddition as compared to off-shore destinations the time zone innear-shore countries will almost be the same which aids in workcoordination. 3.) Increasing costs in other off-shore destinations Cost cutting was the major driving factor behind off-shoreoutsourcing. But most firms today feel that the cost ofoperation in off-shore destinations like India and China isrising. This includes cost of communication, infrastructure andquality control among others. The per-head employee cost ratioin off-shore and in some near-shore destinations also do notdiffer significantly. These factors will surely aid near-shoringand help it gain more impetus. 4.) Declining resources India which currently occupies the number one position as anoutsourcing destination is experiencing a decline in its pool ofeducated and capable employees. Many companies feel thatsecuring quality labor will be a problem in these countries inthe times to come if not at present. This factor though not seenas significant, can play a major role in boosting near-shoreoutsourcing in the future if other probable destinations likeChina and Philippines are not able to come up with efficientlabor solutions. 5.) The need for geopolitical stability Geo-political instability could create a major problem for anyorganization. Near-shore locations are believed to provide amuch stable atmosphere as compared to off-shore destinations.Although there has been no instance of instability in majoroutsourcing destinations like India, in recent times; there areno guarantees as India has experienced such conditions in thepast. In addition to this many companies also feel the need toset up additional outlets in near-shore destinations as a backup measure to deal with any negative situation. One more factor,that gives near-shoring a pat in the back. Countries that can benefit from Near shoring Near-shoring will benefit most Eastern European courtiers likeRomania, Czech Republic and Slovakia, that lie bordering UK. Inaddition to Easter European countries, some destinations aroundUSA like Mexico, Canada and will also benefitimmensely. Among Eastern European countries Romania stands a major chanceto come out as a winner. This is because of the fact that thecountry has advanced infrastructure, geographical proximity,cultural affinity to UK and an investment friendly climate. Inaddition to this Romania also has a good pool of well educatedand highly skilled youth ready to take over. UK firms feel thecost of operations in Romania will be much lower as compared toIndia which is currently the most favored outsourcingdestination. Other Eastern European countries that are likely tobenefit are Morocco, Hungary and the Czech Republic. In the west it is Mexico that is calling the shots. As comparedto other near-shore destinations to US like Canada and CostaRica, Mexico is considered much cheaper and close location. ManyMexican towns are located in close proximity to the US and canbe reached by road. Mexico also has a stable atmosphere withgood communication and technological infrastructure. Culturalaffinity to US and availability of cheap and well educatedEnglish speaking youth are other plus factors that can act infavor of Mexico. The future of near-shore outsourcing Although the situation looks bright, there are some problemsthat can limit the pace of this evident and evolutionaryprogress. One major issue is the issue of local serviceproviding companies. Thought countries like Romania have enoughresources they lack the availability of certified companies whocan cater to high-end outsourced projects. Also the projectedgrowth of near-shore outsourcing by some major researchorganizations is relatively small as compared to the size of theoff-shore market in countries like India. At present EasternEurope and other near shore destinations seem right for firmswho plan to set up their own outlets rather than make use ofservices from local contractors. But this situation can changein the near future. If the near-shoring trend becomes successful and generatessuccess stores it is sure to catch up just like off-shoreoutsourcing did. One does it and others follow, because nobodylikes to take chances in the corporate world.
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