Why nearshoring is here to stay

The topic of nearshoring is increasingly on the talent agenda.

The practice of transferring a business operation to a nearby country or within a country, especially in preference to a more distant one, has been attracting more attention than ever, especially in Europe, since the run-up to the UK’s Brexit Referendum in 2016.

Nearshoring is thought to offer specific advantages over offshoring, including proximity, culture and cost. Multinational companies are more likely to consider nearshoring as the costs associated with operating in countries such as China and India have increased, particularly in relation to salary costs.

Every week since early 2016, we’ve seen articles in the press suggesting that companies, in particular banks, may move teams of people (the numbers can run into the hundreds) out of the UK to nearby countries, for example Germany, France, Ireland and Luxembourg.

Even before the Brexit referendum, Armstrong Craven had seen an increase in demand from its multinational client base for nearshoring location studies to support site selection decisions.

We have seen these requests from a wide range of industries, not just banking but also pharmaceutical, insurance, technology and business services, and across different types of functions, including business operations roles as you would expect, but also increasingly high-skilled roles including lawyers, specialised finance and programming.

Addressing major issues

The decision to relocate part of the business elsewhere is designed to address major issues that all businesses have to face including cost saving, talent attraction and retention and long-term planning, including contingency planning.

However, each situation is unique and demands answers to a huge range of questions, and this is where having input from a trusted, impartial adviser like Armstrong Craven can make all the difference.

There is no such thing as a “one-size fits all” solution when it comes to making strategic location decisions. This applies even if the newly proposed location is not that far away, perhaps sharing a border with an existing site, or even in the same country.

After all, perceptions of cultural and talent similarities are not always necessarily accurate. Having bespoke input built around a precise set of requirements, tailored to the situation, helps organisations to avoid costly location mistakes, that affect both the bottom line as well as the corporate brand, and, in particular, the employer brand.

Relocation needs planning

We’ve heard of companies making the decision to set up operations in a new low-cost location, only to find out, several months later, that the talent they need just isn’t there.

Over the last 18 months, Armstrong Craven has helped multinational clients avoid costly mistakes and address tailored business questions, as they weigh up their nearshoring options. Here’s an illustration of the kind of information that we’ve identified for clients during that time, which shows the scope and depth of these exercises: 

Our evidence and knowledge-based approach, which employs a mixture of desk and phone research, provides confidential, and, as seen above, bespoke solutions for clients.

It highlights the positives and negatives of either an individual location or several prospective locations. We look at future trends and we draw out empirical facts, based on bespoke data and networking with experts in the local market. Above all, we make recommendations to support the major strategic location decisions that our clients make. Based on feedback, this mixture of quantitative and qualitative information is invaluable. 

Common responses include: 

• “This is a very emotive issue for us and our exec team. Now we have data to back up our decisions”
• “We’ve been asking internally for ages, for a map of which competitors are active in which location, and that’s exactly what we have now”
• “It’s great to get solid data around this. We had a hunch but now we have the facts”

The ongoing uncertainty around Brexit will ensure the trend for nearshoring will continue, as will other global macroeconomic trends such as salary inflation in fast-growing economies like China and India.

Organisations that base their location decisions on impartial and insightful data are better placed to reap the benefits of nearshoring, including cost, culture and proximity, and therefore enjoy competitive advantage.

This article was first published in the June issue of the Armstrong Craven Review. To download the white paper for this article click here.