The Evolution of Global Outsourcing and the Rise of Nearshoring
Global outsourcing has been a long-standing practice, and over the years, the Business Process Outsourcing (BPO) model has evolved significantly, incorporating a variety of delivery methods. However, the core driver behind outsourcing remains the same: access to better labor at reduced costs. In recent years, the trend has shifted toward nearshoring instead of offshoring, driven by several factors.
What is Nearshoring?
Nearshoring refers to outsourcing services to countries that are geographically close to the United States, typically within a few hours by plane, which often includes Latin America and the Caribbean. These regions not only offer competitive costs but also boast strong English language skills and a mature BPO market. Bilingual services and labor costs remain key considerations in nearshoring decisions.
Nearshore Market Overview
Several countries in Latin America and the Caribbean have established themselves as strong players in the BPO industry. Below is a snapshot of the nearshore market:
Colombia:
Population: 49M
BPO Revenue: $2.8B
Workforce: 200K workers
Mexico:
Population: 132M
BPO Revenue: $1.3B
Workforce: 168K workers
Dominican Republic:
Population: 10M
BPO Revenue: $750M
Workforce: 36K workers
Guatemala:
Population: 17M
BPO Revenue: $600M
Workforce: 35K workers
Jamaica:
Population: 3M
BPO Revenue: $400M
Workforce: 36K workers
El Salvador:
Population: 6M
BPO Revenue: $368M
Workforce: 27K workers
Why is Nearshoring on the Rise?
A primary reason for the surge in nearshoring is the decreasing availability of quality labor in countries like the US, Canada, and the UK. Additionally, the maturity of call centers in locations such as Jamaica has attracted US companies in search of reliable outsourcing solutions. The geographic proximity of nearshore locations also offers significant advantages over offshore destinations, as the time and cost of travel to visit and manage operations are far lower.
Another factor fueling the growth of nearshoring is increased tourism in these regions, which leads to greater familiarity with US customs, accents, and culture. For example, Jamaica, with a population of just 3 million, saw 3 million tourists visit in the first quarter of 2019 alone. Time zone alignment and the presence of expat communities and experienced managers further enhance the appeal of nearshore outsourcing.
Nearshore destinations provide US companies with an opportunity to “test the waters” when it comes to reducing costs through outsourcing, all while staying relatively close to home.
Is Nearshoring Replacing Offshoring?
While the Philippines continues to lead the global market in English-language voice outsourcing, recent price hikes, cultural differences, and geographic distance have led to a slowdown in offshore demand. Many companies with offshore operations maintain a physical presence in those locations, often employing US staff who frequently travel between the US and the outsourcing site—a costly practice that is becoming increasingly difficult to justify.
Cost Comparison: Nearshore vs. Offshore
Although nearshore labor and operating costs tend to be higher than those of offshore call centers, the superior English proficiency, cultural awareness, and higher productivity levels help to offset these differences. US companies utilizing nearshore services can achieve significant cost savings—ranging from 40% to 60%—compared to employing in-house staff or domestic outsourcing.
What Lies Ahead?
The next major development in the nearshore BPO market revolves around its maturity. As regions like Jamaica approach 40 years of call center growth, questions arise: Will prices increase? Will lower unemployment rates in some countries drive labor costs upward? These are important issues that only time will answer.
Personally, I have extensive experience with Jamaica’s labor force and BPO sector. It is a well-established market with the participation of many Fortune 500 companies. The BPO sector in Jamaica has doubled in recent years and is expected to continue this trend through 2020.
However, political instability poses the greatest threat to nearshore growth. While countries like Jamaica heavily depend on the BPO industry and have political systems that support it, some Latin American nations face more volatile political environments, which could create challenges.
Conclusion
Now is the time to take advantage of the growing nearshore market while staying vigilant for signs of market saturation and maturity. The opportunities are abundant, and with the right vendor, companies can effectively meet their outsourcing needs. Take the time to choose wisely.
For more information on this topic, feel free to contact Phillip W. Duff at phil@lighthouseconsultinginc.com.
