Nearshoring
Encyclopedia
Nearshoring is "the transfer of business or IT processes to companies in a nearby country, often sharing a border with your own country", where both parties expect to benefit from one or more of the following dimensions of proximity: geographic, temporal (time zone), cultural, linguistic, economic, political, or historical linkages. The service work that is being sourced may be a business process
or software development
.
As with offshore
, the term "nearshore" was originally used in the context of fishing and other ocean-based activities and later adapted by the business world.
.
Offshoring involves shifting work to a foreign, distant organization in order to reduce production costs. Offshoring is subject to several different constraints, however, such as time lag between the parties, differences in local employment laws and practices, and oversight. A Western European IT company, say, might outsource software writing to a company in India, which specialises in such work, to take advantage of low cost, and skilled labour with a common language, but the distance between the two means reduced face contact, therefore less control of the project, and greater vulnerability to such as Intellectual Property theft and Fraud.
In contrast, nearshoring means that the business has shifted work to a lower cost organization, but within its own region, broadly defined.
In Europe, nearshoring relationships are between clients in larger European economies and various providers in smaller European nations. Major centers are in the Czech Republic
, Hungary
, Portugal
, Poland
, Romania
, Bulgaria
, Belarus
and the Baltic
. There are also nearshore centers in larger markets, such as Russia
and Ukraine
. These destinations are attractive because they are low-cost, have skilled labor forces, and a less stringent regulatory environment, but crucially they allow for more day to day physical oversight. They also have strong cultural ties to the major economic centers in Europe. For example, Bulgaria is now considered to be a viable outsourcing destination for such companies as German software company SAP
, where labor costs are low, and the skills available, but which is also closer to home.
In the USA, American clients nearshore to Canada
and Mexico
, as well as to many other nations in Central and South America and the Caribbean.
The complexity of offshoring stems from different languages and cultures, long distances and different time zones, spending more time and effort on establishing trust and long-term relationships, overriding communication barriers and activities of that kind.
Nearshoring doesn't necessarily overcome all of these barriers, but the proximity allows more flexibility to align organizations.
Nearshoring has become a marketing differentiator for those nations and providers who wish to set themselves apart from sourcing centers in Asia, especially the dominant, India.
Business process
A business process or business method is a collection of related, structured activities or tasks that produce a specific service or product for a particular customer or customers...
or software development
Software development
Software development is the development of a software product...
.
As with offshore
Offshoring
Offshoring describes the relocation by a company of a business process from one country to another—typically an operational process, such as manufacturing, or supporting processes, such as accounting. Even state governments employ offshoring...
, the term "nearshore" was originally used in the context of fishing and other ocean-based activities and later adapted by the business world.
Overview
Nearshoring is a derivative of the business term offshoringOffshoring
Offshoring describes the relocation by a company of a business process from one country to another—typically an operational process, such as manufacturing, or supporting processes, such as accounting. Even state governments employ offshoring...
.
Offshoring involves shifting work to a foreign, distant organization in order to reduce production costs. Offshoring is subject to several different constraints, however, such as time lag between the parties, differences in local employment laws and practices, and oversight. A Western European IT company, say, might outsource software writing to a company in India, which specialises in such work, to take advantage of low cost, and skilled labour with a common language, but the distance between the two means reduced face contact, therefore less control of the project, and greater vulnerability to such as Intellectual Property theft and Fraud.
In contrast, nearshoring means that the business has shifted work to a lower cost organization, but within its own region, broadly defined.
In Europe, nearshoring relationships are between clients in larger European economies and various providers in smaller European nations. Major centers are in the Czech Republic
Czech Republic
The Czech Republic is a landlocked country in Central Europe. The country is bordered by Poland to the northeast, Slovakia to the east, Austria to the south, and Germany to the west and northwest....
, Hungary
Hungary
Hungary , officially the Republic of Hungary , is a landlocked country in Central Europe. It is situated in the Carpathian Basin and is bordered by Slovakia to the north, Ukraine and Romania to the east, Serbia and Croatia to the south, Slovenia to the southwest and Austria to the west. The...
, Portugal
Portugal
Portugal , officially the Portuguese Republic is a country situated in southwestern Europe on the Iberian Peninsula. Portugal is the westernmost country of Europe, and is bordered by the Atlantic Ocean to the West and South and by Spain to the North and East. The Atlantic archipelagos of the...
, Poland
Poland
Poland , officially the Republic of Poland , is a country in Central Europe bordered by Germany to the west; the Czech Republic and Slovakia to the south; Ukraine, Belarus and Lithuania to the east; and the Baltic Sea and Kaliningrad Oblast, a Russian exclave, to the north...
, Romania
Romania
Romania is a country located at the crossroads of Central and Southeastern Europe, on the Lower Danube, within and outside the Carpathian arch, bordering on the Black Sea...
, Bulgaria
Bulgaria
Bulgaria , officially the Republic of Bulgaria , is a parliamentary democracy within a unitary constitutional republic in Southeast Europe. The country borders Romania to the north, Serbia and Macedonia to the west, Greece and Turkey to the south, as well as the Black Sea to the east...
, Belarus
Belarus
Belarus , officially the Republic of Belarus, is a landlocked country in Eastern Europe, bordered clockwise by Russia to the northeast, Ukraine to the south, Poland to the west, and Lithuania and Latvia to the northwest. Its capital is Minsk; other major cities include Brest, Grodno , Gomel ,...
and the Baltic
Baltic states
The term Baltic states refers to the Baltic territories which gained independence from the Russian Empire in the wake of World War I: primarily the contiguous trio of Estonia, Latvia, Lithuania ; Finland also fell within the scope of the term after initially gaining independence in the 1920s.The...
. There are also nearshore centers in larger markets, such as Russia
Russia
Russia or , officially known as both Russia and the Russian Federation , is a country in northern Eurasia. It is a federal semi-presidential republic, comprising 83 federal subjects...
and Ukraine
Ukraine
Ukraine is a country in Eastern Europe. It has an area of 603,628 km², making it the second largest contiguous country on the European continent, after Russia...
. These destinations are attractive because they are low-cost, have skilled labor forces, and a less stringent regulatory environment, but crucially they allow for more day to day physical oversight. They also have strong cultural ties to the major economic centers in Europe. For example, Bulgaria is now considered to be a viable outsourcing destination for such companies as German software company SAP
SAP AG
SAP AG is a German software corporation that makes enterprise software to manage business operations and customer relations. Headquartered in Walldorf, Baden-Württemberg, with regional offices around the world, SAP is the market leader in enterprise application software...
, where labor costs are low, and the skills available, but which is also closer to home.
In the USA, American clients nearshore to Canada
Canada
Canada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic Ocean in the east to the Pacific Ocean in the west, and northward into the Arctic Ocean...
and Mexico
Mexico
The United Mexican States , commonly known as Mexico , is a federal constitutional republic in North America. It is bordered on the north by the United States; on the south and west by the Pacific Ocean; on the southeast by Guatemala, Belize, and the Caribbean Sea; and on the east by the Gulf of...
, as well as to many other nations in Central and South America and the Caribbean.
The complexity of offshoring stems from different languages and cultures, long distances and different time zones, spending more time and effort on establishing trust and long-term relationships, overriding communication barriers and activities of that kind.
Nearshoring doesn't necessarily overcome all of these barriers, but the proximity allows more flexibility to align organizations.
Nearshoring has become a marketing differentiator for those nations and providers who wish to set themselves apart from sourcing centers in Asia, especially the dominant, India.