Outsourcing, Offshoring or Nearshoring - Which is best for my business?

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Large corporations have been using offshoring to gain a competitive advantage by reducing manufacturing costs since companies like General Electric pioneered the practice in the 1960s. Outsourcing began in the 1950s and has become a strategy attractive business in the late 1980s when companies began to focus more on their core competencies (NCST). Initially, these business strategies were mainly reserved for large companies. However, as remote working technologies have developed and offshoring has evolved from a strategy of reducing manufacturing costs to one of recruiting talent from around the world, companies of all sizes have turned to relocation or proximity as a business strategy.

The strategy has grown since 2020 due to five main factors:

global competition and the search for the best talent COVID-19 forces businesses of all sizes to work remotely employees are voluntarily resigning en masse from their jobs, forcing companies to source talent overseas high inflation rates and fear of a recession are prompting companies to examine strategies for cutting costs and maximizing their budgets companies applying these strategies to almost every role, not just IT.

Related: Your Most Pressing Offshoring Questions Answered

What are the differences between these concepts?

First we need to understand the difference between outsourcing and nearshoring/offshoring. Outsourcing is when one company hires another to be responsible for a complete activity, losing control of the work performed; the first pays for the deliverables. For example, when a company outsources its designs to a design company, it relinquishes control of the business and the hired company takes responsibility for the designs. He will manage the team and provide the designs.

Nearshoring or offshoring occurs when a company hires staff overseas through a company. The company controls the team, which reports directly to the company. The company oversees legal compliance, payroll and HR – it can also provide office space and other value-added services. Suppose a company wishes to retain control of its design team and design activities; instead of outsourcing the work to a design firm, he would hire Mexican designers through a neighborhood recruiting firm. This company would be the employee and be responsible for all personnel matters, but the staff would report directly to the first company, ensuring that they share the same culture and values.

Nearshoring/offshoring is sometimes called personnel outsourcing, because a company outsources everything related to personnel in a given country to a company. Another term used for these practices is virtual staffing, where a company hires, for example, virtual designers. However, virtual staffing is a misnomer because staff would not be virtual; they would report directly to the recruiting company and would be an extension of its team in another country.

The difference between offshoring and offshoring is that in the former, the personnel are in a neighboring country rather than in a foreign country, as in the case of offshoring.

Related: 10 Strategies for Hiring and Retaining New Jobs...