Pros and Cons: Outsourcing vs. Offshoring vs. Nearshoring vs. Remote Teams
My contention is that these terms are often used interchangeably which not only causes confusion but frequently leads US companies to make the wrong decision when considering outsourcing some of their work.
What follows are my definitions and why I think it’s important to your staffing decisions. Your use case parameters will dictate which is right for you, so long as you understand the pros and cons of each one and choose accordingly.
#13We’re strong advocates for Remotes Teams as defined below. Be sure to at least read the 13 Must Have Criteria for Choosing a Nearshore Remote Team section below if you are pressed for time.
Outsourcing – what is it?
The outsourcing definition is not written in stone, but its core is simple. Your company gives certain project (or projects) to a third-party firm (or firms) to be completed.
Example: A US company hires a software development company to create, maintain and/or update their app. This can be one person or a small team. Usually the engagement is project based with defined start and end times.
Outsourcing becomes Offshoring when the US company chooses a software development company from a completely different country as a trusted partner to develop their app. There are many places where companies can go to take advantage of a more economical labor market. For example, India, Eastern Europe or Latin America all of which have been used by US companies looking to offshore their work.
Benefits of Outsourcing/Offshoring
Contracts. No significant long-term contract needed. You sign a contract for a specific task or project.
Flexibility. It gives you the opportunity to change your staff very easy or to work with multiple staff until you find the ones best suitable for you.
No need to relocate. Since this is an impossible or impractical thing to do when your company operates in a certain geographical region.
Lower costs. This includes the hassle of hiring in-house professionals, which can turn out to be a very expensive when considering all the associated benefit and overhead costs. Cost savings can be realized by taking advantage of the availability of a more economical labor market while maintaining the same skill quality.
Shared Risks. You share the risks with your outsource provider. Obviously, your partners would need to assume certain responsibilities for the project you put into their hands, which is a good thing for your investments.
Talent Pool Availability. You can take advantage of specialized, trained and certified professionals that may be in short supply, which means they have the expertise needed to do the required work.
Increased focus on the core of your business. Outsourcing some projects and services can give you the necessary time to improve the core of your business or other parts that might not be working all that smoothly.
Potential Risks of Outsourcing/Offshoring
Hidden costs. Even if outsourcing is still the cheapest solution for companies looking to develop certain projects, you need to be aware of all the costs involved, so you do not end up paying more than initially budgeted.
Lack of deadlines synchronization. It can be easier to control project deadlines when working with an in-house team rather than with a partner half the world away, including the difference in time zones.
Confidentiality. You need to carefully assess what kind of information you’re passing on to the outsourcing partner and discuss upfront an NDA that will prevent them from revealing any sensitive information. This includes considering cyber-security measures.
Communication barriers. If the offshore staff are not fluent in English, this often presents a significant obstacle to efficient work. This become even more pronounced when the offshore staff performs work like customer or technical support by phone to customers of the client.
Different culture and work habits. Most of the time, your offshore staff will make the effort of adjusting their schedule according to yours, but you too will need to make some adjustments that might not be as simple as you think.
Distance. Thinking about visiting your offshoring partners? That could be difficult and costly considering the distance, the costs and time spent traveling.
As offshoring became popular for US companies, the trend was to use countries like India, or the Philippines for staff. This gave birth to the term nearshoring which to outsourcing your project a little bit closer to the US. This trend uses Mexico and other Latin American countries for staffing.
Using the previous example, the US company would be using nearshoring contracting if the work was performed with a software development team in Mexico or Latin America to develop its app. There are several benefits to be gained by considering a nearshore partner.
For this example, I’ll use the benefits of Bradford Consulting’s join venture partnership. While we do not provide offshoring services, we can connect you with a high-caliber nearshore company that has a stellar reputation.
Remember, this is not outsourcing because our joint venture partner utilizes a Remote Team concept with only one monthly fee and no contracts. It’s on a month-to-month basis. Here are some key differences.
Benefits of Nearshoring
Central US time zone. A partnership with our Mexican joint venture partner mean you won’t need to work overtime or connect at extremely early or late hours in order to synchronize meetings between the your teams here in the US and Mexico.
Fewer cultural differences. Being in the same continental region, you and our Mexican partner will face fewer problems regarding the cultural and work differences. They are in La Laguna Mexico which provides significant advantages.
Still cost effective. You can expect savings around 60%.
Proximity. This allows for less expensive and more frequent face-to-face meetings that will most certainly increase the productivity of the collaboration. Direct flights to La Laguna are available and cost-effective. Even day trips are possible, especially from closer states like Texas.
Faster problem-solving. Time zone differences will not get in your way when certain urgent problems need attention both from you and our Mexican joint venture partner.
A Potential Disadvantage of Nearshoring
Higher costs than offshoring. For most US companies it’s possible that engaging a nearshore partner will result in higher fees than an offshore partner. Potential clients must weigh this potential disadvantage against the many of the above benefits of engaging a nearshore partner.
The Remote Team term is often mistakenly associated with the above terms. A key different that is also often overlooked or misunderstood is that Remote Teams by our definition in not a traditional outsourcing method. To miss this is to miss out on a very attractive alternative staffing method.
There are actually two types of remote teams. This term could be referring to an in-house team that just works from a different place (other than the HQ of a company), from home or on the field. Examples could be a sales team that works on the field or a support team that’s located someplace different from the development team.
In the second instance occurs where a Remote Team is mistaken for traditional outsourcing. Here is the key difference…don’t miss this.
This where the Remote Team of professionals are working for a specific company in a nearshoring location and are dedicated to a specific project or type of ongoing work for one US company. It’s the same as a team in HQ or other US company location but this team is located in a nearshoring country other than the US. They are dedicated 100% to work for the one US company. Often this is a longer-term project or for work going forward indefinitely.
There are many different types of work that can fit into this description and here are a few examples. IT development, Digital Designers, Assistants, Data Entry, Purchasing, Cost Analysts, Tech Support, Customer Success, Translations, AutoCAD Engineers, and more.
Benefits for Remote Teams
Guaranteed Saving on Payroll. By choosing the right nearshore partner, savings can be as much as 60%.
Expanded work week hours. US companies doing business with a Mexican nearshore partner (like the one we recommend) will have the team working 45 hours per week at no additional cost.
Reduction in turnover. When near full employment of professionals in the US market occurs turnover can increase when competing employers consistently recruit from their competitors. This will be greatly reduced in this Remote Team concept.
Less HR time. The right nearshore partner will provide full HR support, payroll, benefits and related human resource support, including responsibility for recruiting top people for their US client.
English language proficiency. Your nearshore partner will be able to attract a talent pool not only with the necessary job skills, but who are proficient in the English language.
Increased trust between partners. When both the US client and nearshore partner work closely to one another of extended periods of time the trust level increases as they begin to better understand each other.
Productive communication. Daily based interactions between teams working in the same or near same time zone results in real time communication. No early or late-night phone calls or waiting 24 hours for a response.
Productivity increase. Establishing a well-done work process will result in high productivity and increased profitability.
Fully equipped facility. The nearshore partner provides state-of-the-art facilities with enterprise-level security and confidential, secure, equipped meeting spaces available for the clients’ use. This will include modern computer and communication equipment and software.
More control for the client. You can choose the people in your team and you are always aware of the necessary changes. The nearshore partner will help oversee all operational aspects of the team while the US client remains totally in charge of the team projects assignments, work performance and related.
13 Must Have Criteria for Choosing a Nearshore Remote Team
Financially stable. The nearshore partner must be financially stable to include the ability to provide everything you need to establish your Remote Team.
Easy billing process. Nearshore partners like the one we recommend will bill you one feel once per month. This fee should be all inclusive, totally transparent and contain no hidden surprises.
Month-to-month contract. This means no long-term commitments. The agreement should be 30 days and no longer. Easy to negotiate, easy to implement and easy to terminate should business need dictate.
Meets all the above benefits. When you choose a nearshore partner, they should be able to prove they can provide all of the above Remote Team benefits.
Understands your talent staffing needs. The nearshore partner should have experience in projects or services like the ones you want to outsource.
Demonstrates a talent attraction capability. Your nearshore client should know how to recruit from their location to attract top talent for your Remote Team. This includes relationships with local universities and technical schools. This will yield dedicated, qualified and trained professionals able to understand your needs and handle your projects.
Established track record. Your nearshore partner should have a proven track record of working comparable companies like yours.
Trustworthy References. Your partner’s references should be able to substantiate their ability to become a trusted nearshore partner.
Similar culture. Your partner should be culturally compatible with you and the people from your company. This will make the collaboration so much easier and productive.
Easy to visit. A nearshore partner in Mexico like ours can be reached by a direct flight from the US. This can mean even day trips are possible. When longer stays are necessary there are top hotels available.
Speak English fluently. This include the ability to conduct business in English which will lead to no communication barriers between you.
Solid business platform. Your partner should understand and provide business possess quality technologies and infrastructure, which will allow them to continuously improve performance and quality of services you receive.
Become a true partner. This means they have a grasp of your business objectives and are in a position to help you achieve them.
I hope you found this information useful. If you have questions or want to explore an introduction to a highly qualified nearshoring partner in Mexico, contact Carl Bradford.