Background

Nearshore locations broadly fall into two categories: Near nearshore and far nearshore. The former are located in proximity to the source geography in a similar time zone or separated by a few hours (e.g., Canada/Mexico to United States, Central and Eastern Europe to Western Europe and United Kingdom, Ireland/Scotland to United Kingdom, and Morocco/Tunisia to France) while the latter typically tend to be in a similar time zone as the source geography, but at a significant distance (e.g., Argentina/Brazil/Chile to United States/Canada, Mauritius to France, and South Africa to United Kingdom).

The term “nearshore” is also popularly used as a key differentiator by locations and centers in non-traditional offshore locations (e.g., Scotland, Ireland, Central Eastern Europe, and Latin Americas) while articulating their value proposition. Increasingly, global sourcing executives are overwhelmed with various nearshore propositions and loose usage of the term “nearshoring”. Importantly, companies, increasingly under pressure to reduce cost of delivery across their global sourcing portfolio, are questioning the relevance of nearshore and are often faced with a nearshore versus offshore dilemma.

So, what are the typical attributes (beyond just proximity) of a nearshore location? How to evaluate the relevance and the value created by nearshore locations in global delivery portfolios of companies?

Scope and contents

Everest Group conducted an interview-based survey of leading companies adopting global sourcing. Key questions of interest to several clients were:

1. Are nearshore locations growing or shrinking?
2. What kind of savings can be realized from nearshore? How competitive are the nearshore locations vis-à-vis traditional offshore locations (e.g., India and Philippines) from a cost perspective?
3. How are companies leveraging nearshore? Is it better to use third-parties or Global In-house Centers (GIC)/captives?
4. Is nearshore differentiated for certain kinds of service delivery? If so, what are these services?
5. What roles can nearshore locations play in global sourcing portfolios? How can nearshore delivery complement offshore delivery?

This report addresses the nearshore dilemma and uses a fact-based foundation and an economic framework to present a decision model for nearshore versus offshore. It does not advocate any of the models as being the “ideal”, however, provides pointers for a robust comparison of pros and cons of the two models.

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