Posted in Finance, Accounting and Economics Terms, Total Reads: 304
Nearshoring is a term used when companies shift their operations to nearby countries instead of offshoring them to far away locations. In nearshoring, a company has to find a suitable nearby or neighboring country and its labor to work. Generally, companies existing in large economy areas nearshore their business to small economy areas. Companies generally set up their operations where they find suitable linguistic and cultural fit.
Offshoring is a very common phenomena. Companies outsource their work because they get cheaper labor in other countries. This cost effective method has its own risks. Companies in countries like UK, USA when offshore their work to countries with different native language and culture have to overcome the linguistic and cultural barriers. There is always threat to confidential and intellectual property also. So, this cost saving comes with its own cost!
However, nearshoring is proving as a successful option to companies now a days. For example companies In Europe has option to set up their operations in countries like Hungary, Poland, and Bulgaria where they can find cheap labor with no linguistic or cultural barriers existing in case of offshoring. In Offshoring, it takes time to set up relationship with the other country having different native language. After relationship developing, it takes time to build trust and then business starts. Both the countries agrees on protocols of each other and have to maintain balance between work timings of each other in order to communicate in case of issues related to work. Hence, it takes lots of efforts and time.
Although, nearshoring overcomes the barriers that exists in case of offshoring, there is a tradeoff for cost. In most of the cases offshoring is cost effective but there are some potential threats. Nearshoring over comes these threats but then it is not that cost effective, especially when economy is rising everywhere. Hence, companies has to think wisely on all parameters before making a move for nearshoring or offshoring.