Near, Far, Wherever You Are: The Comparative Guide to Outsourcing Models
It’s no secret that the manufacturing industry catalyzed globalism by taking its operations offshores. Ever since, businesses across all sectors have sought to replicate and improve the strategy. Entrepreneurs have sailed into unknown waters, exploring the many paths that promise to create win-win solutions. But now, decades after these initial expeditions, companies have a plethora of options: Offshore vs Onshore vs Rightshore vs Nearshore, and it’s easy to get lost in the navigation of such similar-sounding waters. However, there are big differences between each approach, with big impacts upon operations, efficiency, and overall success. Here, we explore these shores– with their similarities and differences, strengths and weaknesses– so that your business never strays off course.
Offshoring: The Classic
Offshoring is by far the oldest and most widely-known outsourcing strategy. Essentially, it moves company operations from a more expensive country (normally in North America or Europe) to a lower-cost country (often in Asia). Consumer goods companies have historically found great success is this economy-effective strategy, as it creates competitive prices without sacrificing huge profit margins (Webb, 2017). However, offshoring often loses in efficiency what it gains in capital: companies span the geographical world, unable to work in the same time zone, and thus losing the key factor of immediate communication (Offshoring, 2018). Even further, harsh critics of offshoring in the manufacturing industry contend that the model fosters worker exploitation, taking advantage of the globe’s most vulnerable populations (Webb, 2017).
Onshoring: The Landlocked
Just as it sounds, onshoring business models stay landlocked. Companies that opt for this strategy do team up with other entities, however, staying within the borders of their own nation. The advantages feature streamlined efficiency and local job opportunities; yet the costs quickly add up, cutting profits considerably (Hamilton, 2018). Further, a lack of international collaboration also limits the creativity and innovation that spark from diversity.
Rightshoring: The Skeptic
The term “rightshoring” begs the question: what is “wrongshoring?” And this is a bit of the strategy’s both logic and sentiment. The model filters jobs by importance or complexity–finding the “right” way to do business in keeping high-value jobs in-house, and outsourcing low-value jobs to other nations. Benefits include maximum control over complex tasks and generally deeper customer relationships (Outsource, 2019). That said, rightshoring models often run into problems when all management is distanced from all workers; fast decisions are delayed in reaching the rest of the team, where hierarchical dynamics distance collaboration even more than geography does. Thus, the rightshoring model loses agility, and therefore also productivity and quality (Right Shoring, 2019).
Nearshoring: The Efficient
Nearshoring strategy takes the cost-effective mindset of offshoring, and gets intentional with its geographical and personal talent search. In other words, nearshoring companies seek to hire diverse teams across cultures and even continents, without straying from the same relative time zone. This allows an exponential increase in efficiency from traditional offshoring models, avoiding the 12+ hour loss just to answer a simple question. Further, nearshoring teams tend to be 35 – 50% more productive than those of standard offshoring, a more highly-qualified selection of experts in the field. This strategy is especially key for IT companies, which thrive on efficient communication and qualified talent.
The drawback of nearshoring comes when a company grows so much that its clients span multiple time zones, taking away the key nearshoring advantage of same-time-zone teams (Cantor, 2019). However, smart nearshoring companies avoid this loss by placing most of their hubs in a single time zone, and one strategic office in opposite working hours– catering to companies around the globe, without losing the efficiency benefits of the traditional nearshoring model.
Offshore vs Onshore vs Rightshore vs Nearshore
So many shores, so little time: each of these streams with its current, which can lead to great waters if well-navigated. However, the best solutions most definitely come with an agile, experienced team that understands the risks and benefits of its approach, and leverage them to the client’s advantage. Any business would be smart to paddle on such a (Web)creek, and dock on these (near)shores of collaboration.