Outsourcing in the services sector will continue to rise in popularity and profitability. Unlike in manufacturing, services do not require a huge capital outlay or the relocation of a plant or the company's base of operations. This is very true with services provided by customer-facing staff in the food, beverage and hospitality industry. But, how about services provided by frontline staff in the business and knowledge processing industry? Is outsourcing to an offshore provider a much better option than hiring an in-house team, insourcing, onshoring or nearshoring?
Offshoring, Onshoring, Insourcing and Nearshoring
Offshoring is basically going to a service provider that's located in another country on a different continent. So, if your company in the United States chose to outsource to France, then you're definitely going offshore. But, if your company decided to outsource to Canada, Mexico or even Argentina, then you're nearshoring to a neighboring country. Some companies choose to outsource to a neighboring country because it's bound by the same legal and financial constraints that contribute to the social and economic stability of the region.
Sometimes, a company may choose to onshore and move their operations to a low-cost region or state within their national borders. The purpose of this move is to take advantage of lower taxes and greater business incentives offered by other states. In other cases, companies that used to offshore would return to their country and onshore their operations.
Insourcing, on the other hand, refers to the practice of employee leasing within a country. Rather than look for talent elsewhere, companies may choose to hire a professional employer organization (PEO) to hire their employees. PEOs handle the payroll, taxes, insurance and other benefits of the employees. Instead of the company, the PEO appears as the employer on record for your staff.
What's So Bad About Nearshoring?
As mentioned before, nearshoring takes advantage of the proximity of the outsourcing location. For example, a company's customer base is mainly composed of those with Latino descent. When they need a large group of call center agents, they would naturally hire those who could speak the language well and also knew the culture intimately. And so, the company may choose to augment their service centers in the United States with satellite offices in Mexico.
But, call center agents who speak Spanish fluently are a special breed. The language is a special requirement because it's not as widely used or understood as English. Customers in other countries may have different needs that do not include conversations in Spanish. And, this is where offshoring presents a greater advantage. Aside from the lower costs, going offshore also gives companies the benefits of a highly educated, English-speaking human capital.
A huge concern among businesses that outsource is the political and economic stability of the country where they're outsourcing to. Mexico has a problem with their drug cartels. And, they're not winning any points in failing to stop many of their citizens from entering the United States illegally.
Canada has the same quality of workers as the United States, but they are also as costly as the Americans.
Businesses have a choice to go further south, or they can look towards Asia for the quality and volume of the workforce, for the attractive incentives, for a culturally diverse work environment, and for greater returns on their investments.
What's So Bad About Insourcing and Onshoring?
There's nothing wrong with moving back to the U.S. and hiring people there. As long as businesses are willing to invest in their fellow citizens, the economy will continue to thrive. But, few businesses have the kind of margins that will give them some room for growth.
Insourcing and onshoring won't give these small businesses the chance to grow without putting their futures at risk. Forbes pointed out that using PEOs for insourcing would actually lead to greater costs not only to the company, but also to their employees. Companies may have greater control when they insource or onshore, but they'll continue to be suffocated by their tight margins.
Offshoring Offers Greater Value to Small Businesses
Small to medium-sized businesses, in particular, will need the help of outsourcing providers to push their margins higher and wider. In this sense, outsourcing is the saving grace that allows businesses to grow, create more jobs for Americans, and continue to infuse funds into government coffers. Companies that outsource, after all, will continue to pay taxes to the U.S. government while they try to reduce their administrative overhead costs.
Offshore outsourcing is a more viable option for SMBs because it doesn't cost them much to setup their team with a third-party service provider to manage them. Companies can hire a small team, and they're not expected to employ them for a long time. Companies that outsource are also not obligated to pay for the insurance and other benefits, such as holiday pay, of their overseas workers. All of that are taken care of by the outsourcing provider.