Nearshoring as Business Strategy During Recession

What Qualifies as a Recession?

A recession is a significant, widespread, and prolonged downturn in economic activity. The National Bureau of Economic Research (NBER) defines a recession as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.”

So, is the United States currently experiencing a recession? You will get different answers depending on who you ask. Most economists agree that the United States is not currently in a recession, but could be soon. Stephen Roach, economist and former chairman of Morgan Stanley Asia, told CNBC that the U.S. will need a “miracle” to avoid a recession.

Continue reading to learn how to prepare your business for a recession and survive during tough economic times.

What is Nearshoring?

For many companies, outsourcing is a standard business practice. Outsourcing is a business strategy in which companies hire a third party to take over business operations to cut costs, improve quality, or increase efficiency.

There are different types of outsourcing, one of which is nearshoring. Nearshoring is the outsourcing of business functions or processes to companies in a nearby country, often sharing a border and time zone. When a California-based company hires a digital marketing firm in Costa Rica to manage its SEM campaign or SEO strategy, this is considered nearshoring. Costa Rica is only one hour ahead of Silicon Valley, which facilitates timely communications and helps projects move faster. For a company based in the United States, typical nearshoring locations include Costa Rica, Mexico, and Nicaragua.

Other types of outsourcing include onshoring and offshoring. With onshoring, business processes are outsourced to a company located in the same country but in a different city, region, or state. When a California-based company partners with a digital marketing firm in Nashville, this is considered nearshoring. Offshoring is the process of moving business processes and operations to companies in other countries that operate in different time zones and cultures. When a US-based company hires a company in the Philippines to take over its software development, that is considered offshoring.

How Are Changes in the Economy Driving Nearshoring?

Although nearshoring is not a new concept, many businesses have only recently started to see its real potential. Instead of outsourcing their processes to major offshoring destinations such as India, the Philippines, or Malaysia, businesses are seeking partners in nearby countries instead. There are several reasons for this.

To survive the pandemic, businesses were forced to reassess their priorities. Outsourcing non-core processes can help to increase efficiency and decrease unnecessary costs. Unlike offshoring, nearshoring doesn’t come with time zone differences, cultural gaps, or communication barriers, which makes it the more appealing of the two.

Ongoing geopolitical tensions, such as the war in Ukraine and unrest in Iraq, continue to have an impact on the global economy. Supply concerns, import and export delays, and ramped-up costs have become routine. In an attempt to limit disruptions, companies are transferring business activities to nearby countries instead of faraway regions.

Why Is Nearshoring Good for the Economy?

The current state of the global economy demands that businesses work smarter, not harder. Reducing costs while simultaneously increasing customer satisfaction is essential. With the right nearshore partner, outsourcing digital marketing efforts (such as SEM and SEO) will garner faster and better results with less effort and money.

It is understandable for people to assume that hiring companies outside of the United States could be damaging to the American economy. When hard times hit, the last thing you want is money flowing out of the country instead of in. However, nearshoring can be the solution that helps U.S. businesses stay afloat before, during, and after recession periods.

Nearshoring enables access to talented, dedicated teams that produce the same or higher quality products and services. It also helps to reduce the amount of money that companies spend on office space, utility bills, technology, and other related expenses. Cutting costs during a recession could mean the difference between survival and bankruptcy.

The 2008 recession was a severe worldwide economic crisis that was the most serious financial crisis since the Great Depression. Companies like Apple, IBM, and Cisco survived by outsourcing manufacturing and IT services to other countries, while also keeping skilled workers in the United States. By hiring teams in emerging markets, they were able to keep labor and production costs down.

Why is Nearshoring Good for your Business?

We will highlight four reasons why nearshoring is a logical solution during an impending recession.

1. Nearshoring is cost-effective

When working with an external team, you get help without the hassle. By hiring a nearshore partner, businesses reduce the cost of searching, hiring, and training new staff. In general, website design, app and software development, and digital marketing services are cheaper in Latin American countries than in the United States. By nearshoring these activities, businesses save money which may allow them to retain their most valuable employees.

2. Nearshoring improves efficiency

Low-level employees are usually the biggest victims of downsizing during a recession, they are the first ones to be let go. Due to these staff cuts, higher-level employees may have to work overtime, take on extra responsibilities, and deal with more pressure. In the long run, nearshoring these tasks will be far more cost-effective and time-efficient for organizations. Plus, it will help prevent the remaining staff from being overworked, burned out, or disengaged.

3. Nearshoring provides benefits to employees

A survey by Insight Global found that nearly 80% of U.S. workers are worried about losing their jobs and benefits during the impending recession. When departments such as IT and marketing are nearshored, you save money on hiring and training new employees. Instead, you can reallocate these funds to keep your internal teams fairly compensated for their work, and offer them more or better benefits.

4. Nearshoring makes the workload more bearable

With a recession comes layoffs, and those who manage to keep their jobs often see their workloads increase as a result. With fewer team members, employees have more responsibilities and more roles they’re trying to juggle. This expanded workload can lead to stress, unproductivity, and burnout. Nearshoring will lift some of the weight off your employees and allow them to focus on their core tasks instead.

These are just a few of the reasons why it makes sense to outsource business processes to companies in a nearby country. Once you have decided that nearshore outsourcing is the right choice for your company, your next step is to find a partner that fits your needs, budget, and company culture. It is important to know how to choose a nearshore partner who shares your vision and will help you reach your goals. With the right nearshore partner to guide and support you, you will improve efficiency, reduce costs, and increase productivity.

Why Nearshore in Costa Rica?

In recent years, Costa Rica has become a premiere nearshore destination for US-based companies. There is an abundance of highly educated and bilingual talent in Costa Rica, and the convenient time zone, which enables smooth communication with the US, is another attractive factor. Both countries have similar values and work cultures which make working together a breeze. Costa Rica is a stable country with a booming tech infrastructure and a tech-savvy talent pool. Furthermore, Costa Rica has robust IP laws that protect businesses from having their intellectual property stolen.

Key Takeaways

• Nearshoring is an option for businesses to ride unscathed through a recession―and thrive afterward.
• Nearshoring is the outsourcing of business functions or processes to companies in a nearby country, often sharing a border and time zone.
• Nearshore outsourcing can help the local economy as it allows businesses to cut labor and production costs.
• Nearshore outsourcing can help businesses because it is cost-effective, improves efficiency, makes the workload more manageable, and may benefit internal teams.

About Pixel506

Pixel506 is an award-winning nearshore agency that helps U.S.-based companies succeed in the digital world. We are in the business of software development, web design and development, digital marketing, and mobile application development. 

We could tell you how many years we have been around or how much our team has grown during those years, but what matters most is what we do best―designing, developing, and delivering quality digital solutions that help drive businesses forward.

Given the rising risk of an economic downturn, now is a good time to sharpen your recession strategy. When you partner with Pixel506, you receive instant access to the tools, techniques, technologies, and talent that can help your business not just survive but thrive.

Fill out this form or email [email protected] to discover how our secure, scalable, and reliable solutions can solve even your toughest marketing challenges. We look forward to getting to know you and your business over a (digital) cup of coffee.