Outsourcing of business processes to an external company based in a nearby country or location
With labor costs rising in many countries, companies are turning to nearshoring as an option to reduce high overheads.
According to consulting firm McKinsey & Company, nearshoring can be “economically viable in certain cases, mostly due to savings in freight and duties”. The practice involves moving manufacturing operations to a nearby country that offers greater cost-effectiveness, yet does not compromise on the manufacturing quality or timeline.
As a result of the ongoing U.S.-China trade war, European textile companies have adopted this approach and explored European and North African countries in favor of China, which has seen its price competitiveness eroded by high tariffs.
Although nearshoring still costs more than offshore outsourcing, its advantages are significant. To determine the ideal nearshoring country, companies have to take into consideration factors such as proximity for travel, time-zone difference, cultural discrepancies, and the financial and legal constraints.
As nearshoring usually involves countries within the same geographic region, the ease of collaboration and the compatibility with the company tend to make it the most attractive outsourcing option.
In the coming years, the nearshoring trend is expected to accelerate across different industries. Ultimately, however, pinpointing the right outsourcing strategy depends on individual organizational goals and priorities.