What is nearshoring?- Find out why nearshoring to Latin America can be a cost-efficient alternative

Post-pandemic many companies are following the trend and relocating abroad, particularly in countries such as Colombia, Peru and Mexico. Nearshoring is a term that many in the business world are familiar with but still don’t have a definitive idea of what it means. Although similar to other terms like onshoring, offshoring and outsourcing it nevertheless differs slightly. Companies are always looking for solutions to drive down business operation costs and maximise profits, nearshoring represents a viable solution.

What is nearshoring?

As MerixStudio says in the blog, one of the biggest advantages of nearshoring, is the greater degree of control of the development process. Its definition involves a process upon which a company decides to relocate its operations via a third party, abroad. This often means looking to a country that is geographically close but offers its services at a lower more economical cost. Whilst being in a similar time zone allows for efficient correspondence and collaboration.

How does it compare?

• Outsourcing is a term that nearshoring comes under and essentially signifies the process of a company relocating business activity elsewhere to a third party. 53% of manufacturing companies outsource, placing it as a lucrative industry. However, time differences and cultural barriers do add particular limitations.
• Onshoring involves the same process just on a smaller scale, domestic relocation. Normally an approach adopted by small-medium scale companies in an attempt to reach a certain market that they don’t currently exist in.
• Offshoring occurs when relocating abroad regardless of location, for the sake of driving down operational costs. This is often more prevalent with larger-scale companies who can afford to invest in certain areas to offset the limitations that can be posed from offshoring.

Find a quick youtube summary of business-relocation terms below:

So what makes Latin America an attractive nearshoring destination?

Prevalence of English speakers

In 2020, EF, a language school chain produced an English Proficiency Index (EPI). It concluded that Latin America has a higher average EPI-480 when compared to the Middle East-440 and just below Asia-492. Moreover, Argentina, Costa Rica, Paraguay, Bolivia, Cuba and Chile all have higher averages than China and India. Given that English is one of India’s official languages, that is an impressive achievement. A testament to the region’s growing english-speaking population.

Skilled workers

According to the BairesDev blog, one of the most overwhelming benefits of Latin America is that the region has access to high-quality engineers outside of the

historically competitive US programming job market. Moreover, Colombia came third amongst other Latin countries in the 2019 world talent ranking. This essentially means that Colombia has a large volume of skilled labour available at a low cost.

Low costs

The price of running a business is significantly lower in Latin America. Whether it be employing a software engineer, an HR business or a company like Ongresso. The region consistently offers significantly more competitive prices to help maximise the productivity of a businesses finances.

Time difference

With regards to companies in the US looking to relocate. This is one of the key benefits of nearshoring to Latin America. Typically, the U.S. has looked to India, China and South-East Asia to offshore. However, as costs to relocate continue to increase, the negatives are beginning to outweigh the positives. Being in a similar time zone is essential to allow for the smooth and efficient running of a business. If any problems occur and the two parties aren’t able to correspond with each other then it drastically slows down business operations. The whole of Latin America is within a very similar time zone to the United States and Canada. Colombia, Ecuador and Peru all sit within the same time zone as New York.

Time efficiency

The nearshoring process means that once you have decided to nearshore and collaborate with another company. You don’t have to spend time recruiting staff and establishing a new department to get things up and running. The most suitable employees are chosen by the company you’re using to nearshore to, making it a stress-free and efficient process.

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