How Nearshoring is Cleaning up the Damaged Reputation of Outsourcing
Companies constantly deal with the challenge of how to gain the competitive edge while also expanding to new markets and increasing profits.
For some companies, the demand for their products and services is clearly present, but the ability to scale their operations without placing a financial burden on the company requires a delicate balance that they don’t feel confident tackling.
This scaling dilemma can leave businesses in a sort of purgatory: they are afraid to make a decisive move, yet the more time they spend not acting, the more they are left behind by the competition. This indecision leads us to take a closer look at the role of outsourcing, nearshoring and distributed teams in our modern economy and how they might hold the key to unlocking lower-risk growth.
Outsourcing as a Solution to Measured Expansion
Beginning in the 1990s, US companies saw outsourcing as an opportunity to refocus their efforts on their core business and outsource less critical functions out to more cost-effective providers
This trend began the great migration of jobs to offshore companies who soon began to expand their own services to cover the accounting, HR, data processing, mail distribution, security and other needs of US companies.
As a result, companies were able to effectively reduce operating costs, gain world-wide capabilities and free up internal resources.
Perhaps most importantly, companies were able to build on and improve their core competencies without being distracted with time-consuming tasks.
While outsourcing was initially a valuable tool that fueled growth, over the ensuing decades it took on a negative connotation that still clings to it today.
A general grumbling from customers who weren’t happy with the service they received from third parties turned into an outright chorus of complaints. The idea that you can no longer call a company and speak with someone who actually works at headquarters, or any other US based location, has become a bad joke among unhappy customers.
Where Outsourcing Went Bad
Offshoring, in and of itself, is not bad, but it does create some vulnerabilities where things can go wrong. Here are just a few examples:
- Offshore outsourced companies are likely working with more than one client, which means that their attention is divided. This can translate into a less than ideal customer experience.
- Significant time differences can make it difficult to communicate in real-time, which inevitably leads to delays.
- There is an inherent loss of management control. This can affect a company’s ability to deliver at the same level of standards that they are used to and have built their reputation on.
- Working with outsource companies can increase security risks. If there isn’t a clear agreement about security procedures, then the outsourced services may not be operating with the same types of protections in place.
While these problems may seem manageable, they can quickly balloon out of control. A larger project that is backed by more capital translates into more risk. Of course, these problems are not universal, but the more popular outsourcing became, the more pervasive and apparent these problems became. The booming business of outsourcing created a market where quality wasn’t always the priority.
Outsourcing Gets Political
Offshore outsourcing was already starting to take on a negative connotation, but when the topic began to become politicized, it started a long slide down a slippery slope.
When the topic of conversation turns to the loss of American jobs, the scapegoat is often offshoring.
Politicians like to claim that American jobs are being shipped overseas and need to be returned to America. Ultimately, this is a misinterpretation of both how business and the economy work, but it makes for a great talking point that seems to have stuck in the collective consciousness of Americans, especially those who may be having difficulty finding lucrative employment in today’s job market.
The Resurrection of Offshoring and the Emergence of Nearshoring
The beautiful thing about business and technology is that whenever a problem arises, an elegant solution is sure to follow.
While outsourcing work to offshore companies was proving increasingly problematic, companies were already going to work to find a better way. The solution to bad offshoring is nearshoring – a solution that effectively addresses the common problems associated with outsourcing while offering additional benefits that make scaling even easier in an increasingly global and competitive world.