So far, we have talked a lot in our articles about outsourcing. We have talked about its advantages and the different types of externalization. Because of that, so many readers have asked us how to choose which option is the best for them. That’s how we came up with the idea for this article, but so that you don’t have to go back to the previous post, let’s make a summary.
Outsourcing or externalization is when a company delegates tasks or departments to an external party for a fee. Since these outsourcing providers are highly specialized companies, they can carry out these tasks more efficiently. As a result, the company can access higher-quality services. And all this while they are freeing up financial, human, and logistical resources to devote to its core activities. We could summarise it as: “Entrust the auxiliary task to an expert so you can become an expert in the core tasks.”
There are many ways to classify outsourcing methods. However, the most common way is geographical. We can distinguish three options within this classification: offshoring, onshoring, and nearshoring.
Externalization by Offshoring
Offshoring is the classic procedure. It consists of outsourcing company tasks to distant countries. Its main advantage is usually the reduction of costs due to the difference in salary costs. But it isn’t the only one. Companies typically outsource digital services this way. After all, they do not depend on geographical proximity to work. Finally, they can also be an opportunity to open up your services to different time zones by outsourcing customer care.
When offshoring, you should consider the following aspects:
- The time zone. The time difference can benefit some processes. For example, a call center in another country can extend your customer service’s opening hours and language offer. However, it can also make communication more difficult for specific tasks.
- Geographical distance. Most relevant for the outsourcing of production processes. Transport to your country can be a high cost. On the other hand, it can open up access to new markets.
Externalization by Onshoring
Onshoring is the simplest way to outsource. It takes place within the borders of one’s own country. Therefore, it is the simplest way to eliminate the most annoying or timeconsuming tasks. In doing so, you don’t need to worry about time zones, transport of goods, legal and cultural differences… It also opens up the possibility for your supplier to work on your premises. Therefore you can outsource tasks such as cleaning or equipment maintenance.
Consider opting for onshoring when:
- Your main objective is to reduce your organization’s logistical or administrative burden. Although you will not be able to take advantage of the differences in labor costs, it will be easier to manage the cooperation with your outsourcing provider.
- Onshoring is the best option for tasks that require access to your premises.
- Finally, there are tasks such as managing legal, tax, or labor scares that require experience with the situation in your country. Onshoring is a good option in these cases.
Externalization by Nearshoring
Nearshoring is the intermediate option. It involves outsourcing business processes to countries close to your own. Nearshoring has the best of each option but in small quantities. It is helpful for cost reduction and is easy to manage. You don’t have to worry about time differences, transport costs will be lower, and it is easier to find services in your language.
It is beneficial when:
- The task is very labor-intensive but has to be carried out on your timetable.
- It is a task that requires a medium level of training.
- You are looking for an intermediate solution in terms of value for money.
Each task is different. Moreover, not all companies work in the same way. Therefore, remember to analyze your options before outsourcing. Distance, time zone, and language are the three main points to consider. Offshoring, onshoring, or nearshoring, which is your option for externalization?