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4 Reasons to Consider Nearshoring Vs Offshoring


Fabiana Corredor

Vice President of Marketing

Shared Services and Outsourcing have both proven to be a great business model for reducing operating costs and gaining greater operational scalability for your back office while maintaining a high quality of customer service.

Traditionally, an Asia-based model has been the preferred option for outsourcing, particularly since this represents the lowest cost alternative. However, many organizations have started to realize the unique challenges associated with offshoring (e.g. time zone and cultural differences, language barriers, etc.), and have switched to a Nearshore alternative, closer to home, that can still deliver significant cost efficiencies.

2017 KPMG State of the Outsourcing & SSC Industry quotes about Nearshoring vs Offshoring

Each model has its pros and cons, but the evident growing trend of nearshoring suggests that this is something your organization should be looking at incorporating.

In the case of North American organizations, the nearshore alternative would be Latin America, delivering average savings ranging from 30% to 60% compared to the US market.
If you are a US-based company, here are 4 reasons why you should consider Latin American nearshoring versus offshoring:

1. Time and geographic proximity

Time zone and physical proximity of Latin America to the United States provides a significant advantage over more distant locations, such as Asia. Many early adopters of offshoring have found managing operations that were so distant and with significant time zone disparities to be both challenging and a strain on their workforce. One of the biggest challenges that Asia locations are facing is retaining personnel, especially in the overnight shifts that are crucial to supporting customers in the United States.

In contrast, Latin America has the ability to offer real-time service, which provides employees the advantage of working during standard business hours. This advantage helps reduce the strain on the SSC personnel and contributes to the lower levels of attrition that you typically find in Latin America versus other major shared services locations, such as India. Other factors causing lower turnover are less competition for talent and the unique attractiveness of some of the shared services jobs that are relatively new for Latin Americans, allowing them to work with other countries, cultures, and languages which are shown to be especially motivating for the millennial generation.

Time and geographic proximity also enable a much more collaborative operating model. Communication and team interaction are made much easier, particularly when dealing with issues, exceptions and shifting priorities. Also, the SSC becomes an “extension of your team,” able to communicate and work together in real-time. Travel between locations is made much easier and common under this nearshore model. This greatly enables operational cohesion, effectiveness, and team camaraderie.

2. Cultural similarities

As with geographic proximity, the similarity in culture enables the integration of teams between the United States and Latin America.

Latin America and the United States share very similar business cultures. Pop culture and social customs are also closely aligned, making team interaction more seamless. Working styles and communication differences across regions are much easier to navigate. Business rules, operating instructions, and even schedules are better aligned.

3. Labor pool

One of the most often overlooked factors about the Latin America shared services market is the quality of the labor pool. Based on a recent Auxis study, A Deeper Exploration of Shared Services in Latin America, seventy percent of the survey respondents reported experiencing productivity gains of over 20% after migrating operations to the shared services center. The functional scope of centers in the region goes beyond transactional processes and include high-value activities across all functions: Finance & Accounting, IT, HR, Customer Service, Supply Chain, etc.

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The Latin America and Caribbean region has an overall adult literacy rate of 92%, with leading shared services locations such as Costa Rica and Uruguay at 96.3% and 98.1%, respectively. This compares favorably to other global shared services destinations, such as India which is at 62.8%.

Latin America has a young and educated workforce with at least 11 cities with a minimum population of 1.5 million and numerous universities. These cities include Buenos Aires and Cordoba in Argentina, Santiago in Chile, Bogota in Colombia, San Jose in Costa Rica, Ciudad Juarez, Mexico City, Monterrey and Tijuana in Mexico, and Sao Paulo and Rio de Janeiro in Brazil.

The region offers a critical mass of the young population, which is another strong indicator of the attractive labor force available for shared services jobs. There are approximately 295 million people between the ages of 15 and 44, representing 47% of the region’s total population.

4. Cost attractiveness

Though Asia locations such as India and the Philippines continue to be the lowest labor cost alternative globally, Latin America also enjoys significantly lower labor and operating expenses versus the United States. Per our experience, U.S. companies that have chosen a Latin America location for back office support have typically realized savings ranging from 30% to 60%. The wide range is driven by the type of operating model selected (captive or outsourced), and geographic locations involved.

The savings opportunity can be even higher depending on the city in the United States and the selected location in Latin America. For example, countries such as Colombia or Mexico are usually cheaper than others such as Costa Rica or Panama.

In contrast, the labor savings opportunity between Latin American countries is typically lower, being driven by operational efficiency improvements rather than labor arbitrage. This is constantly fluctuating due to the constant fluctuations in the local currencies in each country. Traditionally Brazil has been the country to provide the highest labor arbitrage in the region, where many multinational organizations are located in high-cost cities such as Sao Paulo and Rio de Janeiro.

If you would like to learn more about the different alternatives your organization may have to leverage Latin America as a nearshore shared services or outsourcing destination, we encourage you to schedule a free consultation with our experts.

If you’re looking for a potential nearshore outsourcing partner in the region, check out our full range of BPO and ITO services here, from our State-Of-The-Art Delivery Center in Costa Rica, the number one nearshore destination.