Onshoring, nearshoring, and offshoring are forms of outsourcing. Onshoring is the practice of relocating business services to another site within national borders. Nearshoring is when services are relocated to a site outside of national borders but within the region of the outsourcer (e.g., along the border of neighboring countries). Offshoring is also done across national borders, but the service provider is typically far away.
In each case, outsourcing information technology systems and services is typically pursued to save money and/or receive IT capabilities not available in-house. Many companies choose onshoring because they want to support their home economy, and because they feel a homeland IT provider offers better service due to its understanding of native IT culture.
But regardless of why a company favors outsourcing, it’s important to debunk four persistent myths that swirl around onshoring. Once you dispel the myths, you’re positioned to make a highly educated decision about which model of outsourcing — onshoring, nearshoring, or offshoring — is right for your company’s IT needs.
1. Managed Services vs Outsourcing
Comparing managed services vs outsourcing is unnecessary because they’re the same thing, right? Yes and no. The terms are often used interchangeably, but they refer to different models on which outsourcing information technology systems and services occurs.
Outsourcing is receiving services from a third party, without having the service provider manage the services. For example, a company may implement a service cloud on a Software as a Service (SaaS) model but manage the functionality of the cloud in-house. If the company implemented the cloud on a managed service model, the service provider would manage the functionality of the cloud remotely.
Comparing managed services and. outsourcing isn’t a debate about which one is better; some companies need third party IT services managed and some don’t. Rather, considering managed services as opposed to. outsourcing is a discussion that clarifies the terminologies. In onshoring, managed services vs. outsourcing is an important comparison to make, as the concepts refer to different types of third party IT service. The differentiation also applies to nearshoring and offshoring.
It’s fine to use the term “outsourcing” colloquially to refer to IT services received from a third party provider. But when it comes down to signing a service contract, it’s important to observe the technical difference of managed services vs. outsourcing.
2. Onshoring is the Costliest Outsourcing
The currency exchange rate between the U.S. dollar and the currency of a foreign service provider primarily determines the cost effectiveness of nearshoring and offshoring. For example, if you nearshore to Mexico, you’ll save a lot more than if you nearshore to Canada. And if you offshored to Kuwait, you’ll pay far more than if you onshored. As of May 2017, one Kuwaiti dinar is worth U.S. $3.31, making it the most valuable currency in the world.
Moreover, a variety of factors influence the cost of delegating IT services to a third party, particularly: managed services vs. outsourcing, type of services outsourced, fee structure of the service provider, payment options (e.g., pay-as-you-go vs. contractual), and market conditions in the third party IT service industry.
Once you explore all of the cost factors, you may find that onshoring is more cost effective option than nearshoring and offshoring opportunities you’re considering.
3. Only Onshoring Supports Our Economy
While it’s true that giving business to U.S. companies supports national job growth, nearshoring and offshoring can also support our economy in a circuitous way.
As reported in Computerworld, a recent study from McKinsey Global Institute found that for every dollar spent on a business process that is outsourced to India, the U.S. economy gains at least $1.12. The largest chunk — 58 cents — goes back to the original employer.” Furthermore, “U.S. companies perform 30% of Indian offshoring, so money returns home as earnings.”
Similar findings exist between nearshoring and offshoring services from the U.S. to other foreign players in the global economy. The U.S. is a longtime leader in international commerce. When U.S. companies outsource IT services, they often outsource to companies that use American technology to render the services.
As Computerworld points out, “It was U.S. technology — [especially] the boom in telephony and fiber optics — that directly contributed to the viability of offshore IT outsourcing.”
4. Onshoring Offers You More Control
When considering local managed services vs. outsourcing, it’s important to note that a loss of control over service quality is one biggest fears of outsourcing. The trepidation isn’t unfounded, but the risk of nearshoring and offshoring IT services depends primarily on laws governing commerce in the service provider’s country and the terms of the contract you strike with the provider.
There’s also customer service, business ethics, and IT competency to consider. For example, many U.S. companies outsource to India partly because East Indians have good English language skills, are motivated to offer first-rate service. Our great communication skills, ethics, and IT expertise in the U.S. also result in foreign countries outsourcing their information technology systems and services here.
Outsourcing IT systems and services via onshoring may make you feel more in control, but control is ultimately determined by how the service provider conducts business. With that said, considering the U.S. is the acknowledged leader in IT, there’s a good chance you’ll receive the best service at home instead of abroad.
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