When seeking to meet operational costs and offset expenses associated with their manufacturing, companies may look for opportunities to re-distribute portions, or even their entire operations, to a 3rd party partner such as Novalink.
The options companies have to choose for outsourcing are plentiful and will typically fall under 3 popular resources: Nearshore, Offshore or Onshore.
The challenge then becomes: “what’s the difference?” and “which one is the best fit for my company?” We will explore the differences between Nearshore, Offshore and Onshore as well as examine the benefits and disadvantages of each option.
Nearshore is exactly as its name implies: a resource for your company operations in another country in close proximity to your own. Here in the United States, this of course means either a company in Canada, or a shelter company in Mexico, such as the facilities currently run by Novalink.
The benefits of a nearshore partner, aside from the obvious advantage of having your operations close to your business headquarters, are great:
- Economical Labor: An economical, and often plentiful labor force at your disposal that is highly-skilled, such as the Maquiladora.
- Similar culture and language skills of the host country to your own: This is especially true for shelter companies in Mexico that border Texas and California; Mexico, Texas and California share many common cultural experiences and traditions with the Latino community, as well as the English and Spanish language, of which both sides are commonly fluent.
- Speed of Execution: The speed in which companies who opt for the nearshore option cannot be matched. Consulting firm Accenture recently purchased a Nearshore firm for this very reason: ““For today’s CMO, it’s all about greater speed to market, responsiveness and relevancy, said Brian Whipple, global managing director of Accenture Interactive.
Offshore most commonly refers to outsourcing to another country for your manufacturing commitments, but unlike a shelter company in Mexico, the Offshore company does not border the country your company resides and is located across the ocean, most commonly in central Asia (such as China), or in southern Asia in such countries as India or Bangladesh.
There are certain benefits to outsourcing your manufacturing to another country as in Nearshoring, however, the location of Offshore companies often becomes a crucial factor in both speed to market and cost of production:
- Similar to Nearshore, Offshore companies have access to skilled and inexpensive labor pools. Although it is commonly accepted the profits gained from the savings of an Offshore group is often offset by the quality of the goods received.
- Some operational cost savings: Also as with Nearshoring, there will be opportunities for operational savings versus having a product produced in your own country, however, location of where the product is produced may eat into those profits.
According to Dr. David M. Anderson in his book Build-to-Order & Mass Customization : “Manufacturing offshore for sale in the U.S. rarely results in a net cost savings, considering differences in labor efficiency and all the costs of shipping, quality, inventory, communications, travel, training, transferring products, support, and complete sets of equipment needed for any manufacture.”
- Because of the large cultural and language differences with many Offshore partners, the need to have collaboration between your company and your Offshore partner can be difficult.
According to Chron,this creates a hurdle for collaboration between home offices and their offshore partners: “The many U.S. and global dialects of English can create “What’d you say?” moments between people who — in theory — should understand one another. Accents can make English speakers from different parts of the world strain to decipher each other’s speech. More confoundingly, non-native speakers may slip into the sentence structure of their native language. Without an understanding of the colloquial speech and slang that can dominate exchanges between colleagues, misunderstandings can occur”.
Onshore is the newest catch-phrase for what most businesses think of when they consider outsourcing: working with a company within your own country, often close to your company’s operation or having the labor force come directly to you. There are several obvious benefits and challenges to this:
- Labor costs can be reduced somewhat, but not nearly as such if you choose a Nearshore or Offshore outsourcing option. You can also save on tariff costs and import duties by having your product in your own country, and the logistics for moving your product to market are reduced.
- There are no cultural or language barriers to overcome; this allows for better communication and collaboration and less risk of misunderstands due to language (or distance).
- Your time-to-market may be reduced as well, although this is dependant on where your Onshore partner is located in proximity to your company. If your partner is across the country from you, your freight and shipping costs may be as much (or more) than using a Nearshore option.
The benefit of choosing the option for your outsourcing really comes down to 2 factors: execution and cost. While factors such as language and labor skill are important, they are not nearly as important as being able to reduce the cost of your product (through labor or production) and the ability to get your product to your market in the most efficient manner possible. These choices made by the business considering outsourcing options may be driven by the needs and goals of their company and the product they are producing, but often, cost-savings often speaks the loudest.