Outsourcing is a widely used term and refers to the externalization of activities or functions within a company to third party firms. Depending on the goals and targeted results of a business, choice may differ depending on the outsourcing type. When choosing a certain type of outsourcing, companies take into consideration existing business process and risk management strategies.

The most common forms of outsourcing are offshoring, nearshoring which are explained below more in detail:

Offshoring

Implies the involvement of an external organization from a more distant location, to take over a part of a company’s business functions or entirely manage these. The main reason for choosing this form of outsourcing is having lower wages and price levels in result, and significantly decreasing costs. Western companies often outsource parts or even entire project teams. If, however, the outsourcing service does not imply a manual production process but rather a customer-related service, certain disadvantages should be considered, such as: different time zones, distance, cultural differences, and language barriers; all these can significantly impact the working process.

 Benefits

  • Access to talent and specialists on a global level
  • Keeping costs at a low level
  • Taking advantage of time zone benefits and full coverage in projects i.e. support 24/7

 Risks

  • Encountering and facing communication barriers
  • Different cultural aspects in terms of work environment and customs
  • High travel costs and travel distances

Nearshoring

Refers to the relocation of business departments or functions to geographically nearby locations which offer better costing options and business advantages. Companies move operations to a more cost-effective region, while taking advantage of further benefits, including time-zone and travel proximity, as well as few cultural differences. The most attractive aspect of this model is the idea of control. Travel proximity, the ability to conduct calls and meetings within familiar timelines, putting little effort into adapting to new conditions, or avoiding the compromise of employee motivation within projects, all these advantages transform nearshoring into the number one choice. Another significant aspect is the similarity in regards to financial and legal constraints which offer a plus of stability within a collaboration of this kind.

 Benefits

  • Similar or identical time zones, overtime and night shifts can be excluded
  • Many cultural similarities as well as easy adaptable situations
  • Keeping costs still effective while also taking benefit of other advantages
  • Travel costs are kept low due to small travel distances, more face-to-face meetings allowing also faster solution of problems in case of critical situations

 Risks

  • Costs are higher than in the case of offshoring. Even so, wages are on the rise in offshoring countries
  • Existence of some cultural discrepancies, such as holidays or other cultural aspects which take influence on how communication and feedback takes place