What is nearshoring and how does it help companies in Latin America? - Companies

He Nearshoring is an outsourcing model through which a company leaves part of its production to third parties, which are located in other countries. In other words, it consists of the relocation of an organization’s operations, with the aim of reducing costs.

Legis, a company that provides information and editorial solutions, defines it as follows: “Nearshoring is a process implemented by companies to reduce their costs by subcontracting companies abroad, with the purpose of outsourcing their business.”

Third parties are usually not only located in strategic and close locations, but also have a similar time zone. This generates, among other things, a proximity of culture and language, but at much more accessible costs.

Over the years, this concept, which is often confused with offshoring -with the difference that it refers to a relocation to a distant country-, has been gaining more and more strength within international trade. In Colombia, for example, we can find some cases.

(Also read: The industrial boom that sees Mexico as an alternative to ‘Made in China’).

Nearshoring is a service outsourcing model.

Supertex, on the one hand, is a Colombian company dedicated to the marketing and manufacture of sportswear for brands such as Nike, Adidas and New Balance. However, we can also find the alliance between the American multinational Pepsi and the Colombian company Postobón. The latter is in charge of the local production and distribution of brands such as Mountain Dew, Seven Up and Pepsi.

Among the benefits offered by nearshoring is the proximity of the partner, as the time difference is usually not great, as well as the geographical proximity to the company that is in charge of outsourcing services or products. A close operation also allows you to react quickly to changes, maintaining greater control.

(Keep reading: Colombia, at a key moment to become a destination for Friendshoring).

“That makes it possible for nearshore developers to collaborate with their internal staff in real time. It also allows you to have strict supervision of all aspects of the development process”, details the portal ‘Zartis’.

Among its points in favor is the reduction of operational costs, by saving on transportation, logistics, communication and import costs. As if that were not enough, it also has an impact on operating times, two factors that could be linked to the customer experience.

Added to the list of advantages is the increase in the company’s productivity, the expansion into new markets, the diversification of business risks and the reduction of work flows.

An opportunity for Latin America

According to Legis, factors such as the health crisis caused by covid-19, the conflict between Russia and Ukraine, and China’s position in international trade have caused a break in value chains. If supply chain failures are added to this, Latin America can aspire to become the place of relocation for many organizations.

Nearshoring opportunities in Latin America “in the short and medium term could represent an increase of up to 78,000 million dollars in new exports of goods and services”points out the Inter-American Development Bank (IDB).

It is estimated that nearshoring could bring with it a multi-billion dollar opportunity for exports from Latin America and the Caribbean.

(Of interest: Nearshoring can increase Colombia’s exports by 5.4% per year).

The projection is that many countries of the continent benefit from outsourcing. Among them are Mexico, Brazil, Argentina and Colombia. The idea is that the region can contribute to the global economy through its participation in global supply chains.