Nearshoring

Nearshoring involves the relocation of operations to nearby foreign countries. Proximity is not exclusively geographical. Also, cultural and linguistic similarities, which can be conducive to the overall success of a project, as well as the number of time zones between the countries play an important role.

Term and demarcation

Nearshoring is a special form of offshoring, (ie outsourcing) of operational activities abroad. Characteristic of nearshoring is the proximity of suppliers and customers. For German companies, Eastern European countries are preferred nearshore locations, while from the US perspective, Canada or even Mexico are frequently used nearshore locations. The implementation of nearshore projects is in comparison to offshoring in more remote low-wage countries (Farshoring), such. India or China, with a number of advantages. The reasons for this are the quick accessibility, negligible time differences, and cultural proximity. However, it must be taken into account that in comparison to the Farshoring often lower wage cost differences exist.

Development and market overview

For Western European companies, nearshoring to Eastern Europe became increasingly attractive as a result of the enlargement of the European Union. In the meantime, a number of IT service providers have been established in many Eastern European countries, working for customers in Western Europe or the USA. However, these providers are generally smaller than their competitors with up to 6,000 employees. The number of nearshores Eastern European countries export very little volume of IT services in terms of volume, their growth rates are sometimes significantly higher than those of established locations - India, the world's largest exporter of IT services, recorded in 2005 -2009 a growth of about 15% pa

Motifs for nearshoring

The motifs for nearshoring can be deduced from those for the offshoring. These are, in particular, cost savings, concentration on core competencies and supplementing one's own capacities. Since labor costs in nearshore regions often exceed those of traditional offshore regions such as India or China, the question arises as to the reasons for nearshoring. Possible advantages of nearshoring can be attributed in particular to the following points:

An obvious feature of nearshore projects is the small geographical distance between suppliers and customers compared to Farshoring. As a result, meaningful meetings between vendor and customer employees are typically faster and more cost-effective for project success. In addition, for many nearshore regions, the removal of visa restrictions makes it easier to exchange staff, while for employees in low-wage countries, issuing visas can be quite expensive.

Significant for the daily cooperation between providers and customers is the small time difference: For example, while the time difference between Germany and Ukraine is 1 hours, the time difference to many Eastern European countries is negligible. The working hours of contractors and clients are therefore almost identical, which simplifies cooperation and communication.

The third point is the linguistic and cultural differences. Using categories such as "distance of power" or "individualism", differences between people of different cultures can be measured, which are generally less pronounced when working with nearshore providers than is the case with suppliers from far shore regions. These differences lead to different behaviors and can sustainably influence trust, performance, and cooperation. This can have an impact on the overall success of an offshore project.