Many startup founders face the challenges of not only starting a business but scaling that business rapidly. This is a challenge not just from the perspective of raising sufficient funds but also taking the time to hire, train, and project manage complex, vital projects like launching a website or deploying an app. Particularly with the tight job market in the U.S., an attractive option to many looking to smooth out the bumps of scaling business on a tight timeline is nearshoring, or outsourcing a product, service, or workstream to a location nearby.
Here’s our breakdown of nearshoring: what it is, its benefits, and why we do it the way we do.
What is nearshoring?
Nearshoring is the business strategy of outsourcing products, services, or specific workstreams to a nearby location. Typically, this would mean the same region or continent for easy communication. Nearshoring also increases the likelihood of cultural and linguistic alignment while still cutting costs and solving logistical or staffing issues on a tight timeline.
Nearshoring Examples
Nearshoring works in a variety of situations. Whether outsourcing a specific business process like web development or accounting, creating a customer service team, or even fast-tracking scaling a team, nearshoring will cut costs and minimize communication issues while doing it.
Given the current job market in the U.S., finding the right people can be difficult and typically involves a months-long search process. Nearshoring talent to a different country not only opens up a completely new and likely untapped talent pool, but it does so at a lower cost and without the difficulties of time zone, supply chain, and linguistic differences associated with outsourcing to countries further away.
Nearshoring can operate on either a permanent or a temporary contract basis, depending upon the company's needs. Some will use nearshore talent for a single project, while others might be more interested in setting up a permanent customer service department abroad to maintain consistency in their customers’ experiences.
The benefits of nearshoring
Nearshoring typically solves a problem of money, time, or a combination of the two. Whether cutting costs while depending on high-quality work or needing to scale a company in a short amount of time, nearshoring can provide all the benefits of traditional outsourcing, but keeping in touch with logistical concerns: minimal time zone differences means greater ease of communication.
Communication
Outsourcing to the other side of the world can present both linguistic barriers to communication and, more pressingly, time zones can create several-hour lags in communication. Nearshoring ensures minimal time zone difference to foster a culture of synchronous communication without anything getting lost in the wait.
Logistics
When you outsource to the other side of the world, there are several logistical considerations around time zones, working hours, and continuity of service and communication. It’s also easier to coordinate offsite meetings, visit your nearshored teams, or have your nearshored employees visit your company’s HQ.
Labor cost
U.S. labor costs are high; labor costs are lower in other countries. Typically, a high-value worker in the U.S. will require a benefits package that equates to tens of thousands of dollars per year and valuable time spent negotiating the overall compensation package. Providing equivalent full benefits comes at a lesser cost in many nearby countries than in the U.S.; for example, healthcare benefits for an American citizen can cost as much as $1,000 per month, while a similar level of health insurance in a Latin American country might only cost $100/month.
Hiring timeline
Nearshoring often utilizes largely untapped talent, which means that high-quality candidates are easier to come by, shortening the overall hiring process.
Cultural similarity
While not a 1:1 match, as would be the case for any non-American country, nearby countries that are viable candidates for nearshoring are largely operating on the same value system as the U.S. Norms around meetings, work ethic, and collegial relationships are similar enough to make any adjustment period to onboarding a nearshored team a small one.
Nearshoring between Latin America and the United States
An obvious candidate for nearshoring is Latin America, given its proximity to the United States, large workforce, and advanced economic development. Cities like Medellín, Colombia are already hotbeds of digital nomadism for American remote workers; many Latin Americans also speak English, which helps ease communication.
Nearshoring in Latin America also sports the benefit of attractive destinations for business travel, relatively short plane flights to visit nearshore teams, and a robust culture of hard work and play that makes for excellent employees.
Nearshoring vs outsourcing
Nearshoring is, in effect, a form of outsourcing that favors proximity, culture, and communication over pure cost. It also has more ethical dimensions in that companies look for a constellation of traits in their employees, not simply the lowest cost imaginable. Nearshoring engenders a spirit of long-term investment that prioritizes quality — otherwise, these labor costs would take precedence over ease of communication and logistical considerations.
Other types of business models
Nearshoring is just one type of business strategy companies can employ to cut costs and incorporate a more international strategy. Here are some others:
Onshoring
Onshoring is, in many ways, the opposite of international outsourcing/nearshoring, in that it involves bringing operations back to a company’s home country after being stationed abroad. It can also refer to outsourcing certain services or products to third-party providers in the same country, like a customer service call center or an accounting firm.
Offshoring
Offshoring is the practice of outsourcing business practices or services to a low-cost foreign country to reduce costs. While it certainly can streamline a business and cut costs, it also poses communication, quality, and logistical risks, particularly if the country of choice for offshoring is on the other side of the world.
Reshoring
Reshoring is returning a formerly offshored or nearshored business practice to a company’s home country, reconsolidating business.
How to get started nearshoring
Nearshoring can be a daunting process — but we’re here to help. The first step is to figure out what aspect of your business needs could benefit from nearshoring. Do you need someone to build your website for the next six months, or are you looking for forward-thinking accounts or customer service representatives? Any sector of talent is available for nearshoring purposes, especially in LatAm, but figuring out who you need is a good first step.
After that, consider whether this will be a temporary operation or a long-term investment in people and a place — this will help guide the degree to which you plan on scaling. From there, research any legal and economic implications of this choice, and consider making local contacts (or reaching out to us!) to draw from the local talent pool.
Rules, norms, & regulations
Managing accounting and payroll for U.S.-based employees is difficult enough: there are considerations around PTO, paid family leave, unpaid leave, disability, and overtime and/or bonus pay. When nearshoring to another country, this complexity compounds: besides currency exchange, there are also cultural norms to consider.
For example, some countries, like Uruguay, require PTO to be at double the pay rate of a typical work day. In contrast, other countries, such as Argentina and Mexico, have a 13th month of pay known as an aguinaldo, typically paid around the holiday season. Without careful inquiry into payroll, tax law, and employment customs, nearshoring can have many hidden labor costs.
Conclusion
Nearshoring provides a practical and high-quality solution to many companies looking to scale quickly and with a team that will cost less and deliver a high-quality product. With smoother logistics and communication, startups should consider nearshoring to build their business faster and embrace an international collaborative culture.