A few days back it was off-shore outsourcing that was making the waves and now it is near-shore outsourcing. Not a very new phenomena except for the term; near-shoring involves shifting work to people in neighboring countries rather than to distant off-shore locations. Discussed in this article is the new trend of near-shore outsourcing and its future implications.
The near-shore outsourcing trend
To a large extend outsourcing meant shifting of back-end operations to cheaper off-shore destinations like India, Philippines and China. But the trend seems to be changing swiftly. Businesses today look more concerned about security and stability rather than mere cost savings and this is why most of them are adapting to the new wave of near-shore outsourcing. Proximity for travel, cultural affinity and developing infrastructure are a few other reasons for near-shoring getting the boost. Relatively lesser known outsourcing destinations like Mexico, Canada, Costa Rica, Romania, Slovakia and Chez republic have chances of emerging as major winners of this new trend in the years to come. Discussed below are the major factors that may 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-shore outsourcing. Countries located in near-by locations are likely to have a similar cultural background than off-shore countries and many businesses today find this to be an important factor. Most are of the opinion that having a close cultural link helps in reducing common problems and conflicts that can arise when teams 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 or other documentations. Proximity also means better and cheaper communications, faster work and better understanding. In addition as compared to off-shore destinations the time zone in near-shore countries will almost be the same which aids in work coordination.
3.) Increasing costs in other off-shore destinations
Cost cutting was the major driving factor behind off-shore outsourcing. But most firms today feel that the cost of operation in off-shore destinations like India and China is rising. This includes cost of communication, infrastructure and quality control among others. The per-head employee cost ratio in off-shore and in some near-shore destinations also do not differ significantly. These factors will surely aid near-shoring and help it gain more impetus.
4.) Declining resources
India which currently occupies the number one position as an outsourcing destination is experiencing a decline in its pool of educated and capable employees. Many companies feel that securing quality labor will be a problem in these countries in the times to come if not at present. This factor though not seen as significant, can play a major role in boosting near-shore outsourcing in the future if other probable destinations like China and Philippines are not able to come up with efficient labor solutions.
5.) The need for geopolitical stability
Geo-political instability could create a major problem for any organization. Near-shore locations are believed to provide a much stable atmosphere as compared to off-shore destinations. Although there has been no instance of instability in major outsourcing destinations like India, in recent times; there are no guarantees as India has experienced such conditions in the past. In addition to this many companies also feel the need to set up additional outlets in near-shore destinations as a back up 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 like Romania, Czech Republic and Slovakia, that lie bordering UK. In addition to Easter European countries, some destinations around USA like Mexico, Canada and Costa Rica will also benefit immensely.
Among Eastern European countries Romania stands a major chance to come out as a winner. This is because of the fact that the country has advanced infrastructure, geographical proximity, cultural affinity to UK and an investment friendly climate. In addition to this Romania also has a good pool of well educated and highly skilled youth ready to take over. UK firms feel the cost of operations in Romania will be much lower as compared to India which is currently the most favored outsourcing destination. Other Eastern European countries that are likely to benefit are Morocco, Hungary and the Czech Republic.
In the west it is Mexico that is calling the shots. As compared to other near-shore destinations to US like Canada and Costa Rica, Mexico is considered much cheaper and close location. Many Mexican towns are located in close proximity to the US and can be reached by road. Mexico also has a stable atmosphere with good communication and technological infrastructure. Cultural affinity to US and availability of cheap and well educated English speaking youth are other plus factors that can act in favor of Mexico.
The future of near-shore outsourcing
Although the situation looks bright, there are some problems that can limit the pace of this evident and evolutionary progress. One major issue is the issue of local service providing companies. Thought countries like Romania have enough resources they lack the availability of certified companies who can cater to high-end outsourced projects. Also the projected growth of near-shore outsourcing by some major research organizations is relatively small as compared to the size of the off-shore market in countries like India. At present Eastern Europe and other near shore destinations seem right for firms who plan to set up their own outlets rather than make use of services from local contractors. But this situation can change in the near future.
If the near-shoring trend becomes successful and generates success stores it is sure to catch up just like off-shore outsourcing did. One does it and others follow, because nobody likes to take chances in the corporate world.
