What is Nearshoring?

Nearshoring is a type of offshoring where a business transfers its operations or services to a nearby country, often one that shares a border or is in the same time zone. The motivation for nearshoring is often to lower labor costs while minimizing the challenges associated with different time zones and cultural differences, thus enabling more synchronized communication and collaboration.

Nearshoring has emerged as a compelling strategy, offering a middle ground between offshoring’s cost-effectiveness and the convenience of domestic operations.

Advantages of Nearshoring

Nearshoring offers several benefits, making it an attractive option for many businesses:

Cultural Alignment: Similar cultural backgrounds can lead to better communication and understanding between the teams.

Reduced Travel Time and Costs: Geographic proximity allows for shorter, more affordable travel, making in-person meetings and site visits more feasible.

Time Zone Compatibility: Operating in similar time zones enhances real-time communication and collaboration, enabling quicker responses to challenges and opportunities.

Potential Challenges of Nearshoring

Despite its advantages, nearshoring is not without its challenges, which include:

Cost Savings May Vary: While nearshoring can reduce operational costs, the savings might not be as significant as those achieved through offshoring to countries with substantially lower labor costs.

Economic and Political Stability: The economic and political stability of the nearshore country is crucial, as any instability can impact operations and partnerships.

When to use Nearshoring?

Nearshoring works for a broad set of activities like software development, call center activities, back office tasks, etc. It offers moderate cost-saving potentials compared to offshoring, but the complexity to manage is lower as well. Therefore, it also qualifies for very small teams. For more details, you can read our Nearshoring vs Offshoring blog post.

Modern approaches to Nearshoring using EOR

Which countries are used for nearshoring depends on your location. Clients from the US nearshore to Mexico, clients from Australia nearshore e.g. to the Philippines. Clients from Western Europe often have used countries like Poland in Eastern Europe or Portugal. For several years, we have seen salaries for qualified talents rising in those countries, which makes it more difficult to achieve significant cost savings by choosing these countries. Some of our clients now choose countries like Turkey, Tunisia, or Egypt as nearshore destinations. They are still in a similar time zone and have cultural proximity while offering competitive salaries. Another trend we see is that many clients establish their nearshore team without having a local entity in the nearshore country. They use an EOR provider instead. We call this service Nearshoring by Employee Leasing. The approach is straightforward. FMC Group hires employees in the nearshore country on behalf of the client. The client takes over the functional management of the employee while we take over the administrative part (paying salary, payroll tax, social security, etc.). For some clients, we take over additional tasks like recruitment, providing office space, purchasing notebooks and mobile phones, etc. This works for all company sizes and many different use cases, as there is no minimum team size – we have clients that start with one employee abroad.

If you are interested in this topic, we recommend watching our webinar on demand “Smart Cost Savings Through Nearshoring by Employee Leasing”.

Do not hesitate to reach out to us if you have any questions.