I’d like to welcome Susan Evans as a first-timer on my blog. Susan is Managing Director, Tompkins International, EMEA. With more than 20 years of experience in transportation, logistics technology and global supply chain issues, Susan leads companies to achieve supply chain excellence. Her first-hand expertise in Europe and Africa stems from living and working in these regions for the past 14 years.
Today, I’d like to provide you with the basics of the pros and cons of nearshoring, with a focus on Eastern Europe. And I hope to help you make informed decisions about outsourcing – whether you’re looking for your business processes to remain nearby or to send them to distant countries.
To begin, let’s talk about cost savings – which, as you know, is a major factor in any outsourcing decision.
In an effort to reduce operating costs, many European companies are moving some business processes east. But not all processes are moving as far as Asia or going offshore; some are relocating to the neighborhoods of Central and Eastern Europe. A few key reasons for this include lower labor costs combined with the advantage of being in close time zones, easily accessible locations for project meetings, and closer cultural compatibility.
Sourcing, production, IT and support are examples of business processes that are being considered for outsourcing, and some of these are staying “near” to the home country. When this occurs, the outsourcing in close proximity to home is termed “nearshoring.”
Nearshoring, often referred as “nearshore outsourcing,” is a derivative of the business term “offshore outsourcing.”
We are hearing a lot of interest in this topic from our European clients, due to the advantages of nearshoring. As I touched on earlier, one possible advantage is lower travel costs to support projects. Nearshoring also helps reduce the number of visa requirements or issues, which is a key consideration, taking into account the necessity of a significant number of business trips when outsourcing.
Another benefit to European companies is that European Union (EU) legislation provides complete protection of intellectual property rights. This is a critical component when sensitive proprietary information needs to cross as a result of the nearshore engagement, and with a nearby location, legislation will remain the same.
However, not all processes are best for nearshore, and some continue to be most cost effective with offshore outsourcing. As stated in Jim’s previous blogs and highlighted in his book Bold Leadership, before considering outsourcing, one must identify core and non-core processes and, of these, which would be a good candidate for outsourcing.
At the same time, whether outsourcing offshore or nearshore, consider service to your customer and all financial components – not only labor, but also transportation and facility costs. You can see more details in Gene Tyndall’s report – Managing the Total Costs of Global Supply Chains. A financial view of a global supply chain focusing on Total Delivered Costs provides the data needed to make sound outsourcing decisions.
Also, check out this link to the page “Outsourcing Logistics and Other Competencies,” which can help guide you to the best decisions about outsourcing.
And if your organization is making decisions now about nearsourcing or outsourcing, what questions might you have? What has have your experiences been?
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