Avoid making these 10 common nearshore outsourcing mistakes

by Andy Nguyen
Common Nearshore Outsourcing Mistakes

Nearshore outsourcing is contracting business services to a service provider in a neighboring country. 

Nearshoring can help companies achieve significant cost reductions, access highly skilled professionals, and scale operations. 

That is when it’s done right. 

On paper, contracting your business needs to a neighboring country sounds easy, but in reality, companies tend to make some common nearshore outsourcing mistakes that ultimately hinder their growth. 

Looking to nearshore your business but worried about getting it wrong? 

We’ve got your back. 

In this article, we’ll discuss the 10 most common nearshore outsourcing mistakes and what you can do to avoid them. We’ll also answer three frequently asked questions on nearshore outsourcing. 

Let’s begin. 

Table of Contents

Top 10 common nearshore outsourcing mistakes & how to avoid them

Here’s a look at 10 common nearshore outsourcing mistakes and how you can avoid them:

1. Choosing the wrong offshore outsourcing model

Sometimes businesses fail to benefit from offshore outsourcing because they choose to work with the wrong outsourcing model. 

Three key offshore outsourcing models address different business needs and priorities. Here’s a closer look at each of them.

A. Onshoring

Onshoring refers to outsourcing business operations to service providers based in the same country as your company. Onshore outsourcing can increase control over operations and improve communication with the outsourced team. 

For example, a German company outsources its software development project to a software development team in Germany.

However, unlike the other offshore outsourcing models, onshoring can be expensive. 

B. Offshoring

Offshoring refers to contracting a company’s business operations to an outsourcing service provider overseas. 

For example, an Irish company plans to offshore software development to a dedicated development team in a faraway country like Mexico in South America. 

Read our list of 10 Inspiring Offshoring Examples for Your Business. 

Through offshoring, businesses can move operations to a country with lower labor costs and avoid costly regulations and taxes.

However, offshoring comes with collaboration challenges owing to language barriers and different time zones. Offshoring may also put a company’s intellectual property at a greater risk. 

C. Nearshoring

Nearshoring refers to outsourcing business operations to a neighboring country. 

For example, a company in France (Western Europe) plans to nearshore software development to a software development company in other European countries like Poland or Ukraine (Eastern Europe).

Read our article on Successful Nearshoring Examples to Guide Your Business for more.

In more ways than one, nearshoring offers the best of both worlds. 

While it may not be as cost effective as offshoring, it can be more profitable than onshoring. And while it may fall behind onshoring in workflow management, it offers more quality assurance than offshoring. 

How to Avoid This Nearshoring Mistake:

Narrowing down your key business priorities can help you pick the right offshore outsourcing model. 

If cost savings aren’t a business concern and you’re looking for quality assurance and work efficiency, then onshoring may be the right choice. However, if cost savings is your biggest business priority, then offshore may be your best option. 

If you’re looking for better collaboration with your outsourced team and more quality control while having a flexible budget, nearshoring may be the right choice. 

2. Lack of due diligence while choosing a partner

Failing to do due diligence before picking a nearshore outsourcing partner can potentially threaten your business growth. Without careful consideration, you may work with an outsourcing company that can’t meet its end of the agreement. This could lead to a delay in your project time frame. 

How to Avoid This Nearshoring Mistake:

Treat due diligence as an indispensable part of any nearshoring process. It’s best to check references or contact former clients of a potential outsourcing provider. 

You can research the organization’s track record to see if they’ve satisfied past clients and if they’re involved in any lawsuits. Carefully vetting all nearshoring offers before making a final decision will pay off in the long run.

3. Lack of a detailed nearshoring contract

Contracts are legally binding documents. They define the responsibilities of both parties involved in a nearshoring task. When you nearshore without signing detailed contracts, your business may become vulnerable to several risks. 

For example, you may not have a clear understanding of the scope of work that’s contracted to the service provider. Additionally, the service provider may not be held accountable for poor performance. 

Your company may also be subject to hidden costs associated with the agreement without any legal recourse if something goes wrong.

How to Avoid This Nearshoring Mistake:

Ensure to sign a detailed nearshore outsourcing contract that includes provisions such as:

  • A timeline of work goals and deliverables.
  • Pricing for different tasks and payment schedules.
  • A reporting system to keep track of work progress.
  • Details on how the nearshoring relationship will end.
  • Breakdown of who owns the deliverables from the nearshoring task.

4. Poor onboarding program

One of the common mistakes you can make while nearshoring is assuming your outsourced team can hit the ground running from day one without any need for onboarding. 

This nearshoring oversight is a tell-tale sign of your company not treating service providers as an extended team. You may have to then compromise with the quality of the work delivered. 

How to Avoid This Nearshoring Mistake:

Here are some steps you can take to avoid poor onboarding:

  • Ensure your outsourced team members have a clear understanding of their job roles and know their scope of work.
  • Do a thorough tech onboarding. This includes ensuring your outsourced team downloads the necessary software, sets up the right hardware, etc. 
  • Ensure the nearshore team has a deep understanding of your business process. A thorough knowledge transfer through training modules and knowledge bases can help.
  • Share your business’s larger vision with your outsourced team to ensure they’re in sync with your business goals. 

5. Absence of a robust communication channel

Due to similar time zones and lesser cultural barriers, communication with a nearshore team is relatively easier than communicating with an offshore team. 

However, companies opting for nearshore can become complacent and overlook the importance of establishing clear communication protocols, resulting in inefficient collaboration. 

How to Avoid This Nearshoring Mistake:

It’s important to have clear communication protocols in place. 

This can include: 

  • Setting up regular meetings.
  • Using tools like email or video conferencing for communication.
  • Establishing a shared project management platform where all stakeholders can access the most up-to-date project information. 
  • Ensuring all stakeholders know who to contact in case of any questions or concerns. 
  • Creating a separate and dedicated communication plan before starting an outsourcing project.

6. Failure to involve your in house team

Not involving your in house team can also lead to several internal problems. For one, not being in the loop about the process can leave your in house team feeling disconnected and unmotivated. 

Additionally, by not involving your in house team, you won’t be able to leverage their existing expertise over the outsourced business operation. 

How to Avoid This Nearshoring Mistake:

You can involve your in house team by explaining why you’re choosing to nearshore a business process to another dedicated team. 

You can then host a face-to-face meeting detailing the nearshore outsourcing process. This briefing can include details on the final result you expect from the process, the productivity management and communication tools you’ll use to stay up to date, and more. 

7. Lack of a data protection plan

Like other offshore outsourcing models, nearshoring can expose your company’s sensitive data to potential breaches. 

Without proper security measures, you may be more vulnerable to cyberattacks or data theft. This outsourcing problem can also lead to reputational consequences if sensitive customer information is compromised.

How to Avoid This Nearshoring Mistake:

Here are some of the key steps you can take to implement a data protection plan while nearshoring:

  • Conduct a security audit to assess your existing data protection policies and identify potential vulnerabilities. 
  • Customize your data security to include measures like encryption, access control, and activity monitoring.
  • Conduct regular risk assessments to test the data protection measures while collaborating with your nearshore team.
  • Ensure your data protection plan remains up-to-date as your organization and data evolve.

8. Ignoring compliance with local laws

Overlooking local laws can cost your business capital and time. 

Let’s say your company is in North America and is looking to nearshore software engineering services. Let’s assume you then hire a software developer from Costa Rica in Latin America

However, you find out later that the developer can’t provide services because of a new legal work restriction involving Costa Rica and the United States. This would lead to a loss of revenue and can cause a massive delay in the software outsourcing services you require.

How to Avoid This Nearshoring Mistake:

It’s best to have a legal expert or a team of experts look into the compliance laws of your chosen nearshore destination. They can warn you about potential problems before you proceed with your service provider. 

9. Failure to pursue a long-term collaboration

Working with a nearshore service provider for a short stint and moving on to another provider can burden your company. 

This practice can lead to unsatisfactory work results and poor collaboration between the nearshore team and your internal team. 

How to Avoid This Nearshoring Mistake:

The longer you work with a nearshore service provider, the more they understand your product, company, and team culture. This understanding can further boost your outsourced team’s work efficiency. The practice can also reduce the burden on your in house team to keep training new service providers. 

If a service provider does a satisfactory job with their initial outsourcing project, consider extending their contract and working with them on more projects. 

10. Lack of ongoing management

Companies often assume that nearshoring business operations is equivalent to getting rid of responsibility. This “out of sight, out of mind” mindset can land you into trouble. 

Without ongoing management, it’s difficult to identify and resolve issues on time. This can lead to subpar results and a lack of satisfaction with the nearshore arrangement. 

How to Avoid This Nearshoring Mistake:

Companies must have systems and protocols for a project manager or a dedicated team to monitor the vendor’s productivity.

Tools like Slack, Skype, Jira, etc., can help you communicate and collaborate with your nearshore team. However, to establish accountability and boost team productivity, consider using a time tracking tool like Time Doctor

What’s Time Doctor?

Time Doctor Time Tracking

Time Doctor is a powerful time tracking and employee productivity management tool used by small and large companies to enhance their team’s productivity and work efficiency. 

You can use Time Doctor to:

Let’s now discuss three commonly asked questions about nearshore outsourcing.

3 important FAQs on nearshore outsourcing

Here are answers to some frequently asked nearshore outsourcing questions:

1. What are the benefits of nearshoring?

Here are the key advantages of nearshore outsourcing:

  • Access to a larger talent pool of qualified candidates for your business.
  • Reduced operational costs when nearshoring to countries with lower costs for labor.
  • Improved efficiency owing to shorter communication lines and similar time zones.
  • Flexibility to scale up or down your operations as needed.
  • Increased competitive edge by allowing you to tap into new markets.

2. How to choose the right nearshore outsourcing destination?

Choosing a nearshoring location can be a challenge if you’re implementing such a business outsourcing strategy for the first time. 

The right nearshore outsourcing destinations should:

  • Be in proximity to your company’s home country. 
  • Have similar time zones.
  • Have lesser cultural differences than traditional offshore locations.
  • Offer services to address your business needs, such as business process outsourcing, software development, customer service, IT outsourcing, etc. 
  • Provide outsourcing services at a cost lower than your home country.
  • Give you access to a large pool of expert professionals.
  • Have favorable local compliance and tax laws.
  • Provide advanced infrastructure and tech facilities.

Think Mexico is the right pick for you? Read our article on Nearshoring to Mexico in 2022 for more. 

3. How to choose the right nearshore outsourcing vendor?

Choosing the right nearshore outsourcing vendor can help your business avoid outsourcing failures. 

Here are some steps to ensure you make the right choice:

  • Narrow on the best nearshoring location for your business needs.
  • Do thorough research to create a list of the best nearshore service providers within your selected country.
  • Dive deeper to understand their size, locations, and ability to scale.
  • Note their past work records to identify success stories and their expertise. 
  • Shortlist your potential nearshoring partners. 
  • Check for what outsourcing services these shortlisted vendors provide along with their pricing.

Final thoughts

Nearshoring is a great way to achieve successful outsourcing while conserving capital and in-house resources for core functionalities. 

However, for nearshoring to be effective, you must take heed of the frequent errors most businesses make.

You can give this article a detailed read to understand the 10 common nearshore outsourcing mistakes companies make and how you can avoid them.

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