Nearshore – More Relevant than Ever

Nearshore locations are obtaining increasing relevance in the service delivery portfolios of global BPO buyers, according to new data from Everest Group. In a recent webinar covering notable Q3 2012 BPO trends, Everest Group zeroed in on some of the intriguing activity occurring in the Ambox_current_rednearshore BPO space.

Everest Group actually breaks its definition of nearshore into two separate categories: “near” nearshore with close proximity to source geography and similar time zone, such as Mexico to the US, and “far” nearshore with similar time zone to source geography but significant geographical distance, such as Argentina to the US. Everest Group also takes a global approach to the nearshore BPO phenomenon, looking at how clients in other regions of the world select nearshore outsourcing locations (such as France and Mauritius) as well as how US clients select locations in Latin America and the Caribbean.

Bigger Companies More Likely to Use Nearshore
Regardless of whether you’re talking about “near” or “far” nearshoring, the numbers suggest nearshore locations are a crucial component of many companies’ global service strategies. Fifty-seven percent of global companies with more than 2,500 full-time employees (FTEs)  have nearshore outsourcing operations. This figure drops to 31% for global companies with  500-2,500 FTEs and only 14% of global companies with fewer than 500 FTEs.

As might be expected, the average number of nearshore locations in a global company’s BPO portfolio also drops with size. Organizations with more than 2,500 FTEs average 2.6 nearshore locations, which falls to 1.9 for organizations with 500-2,500 FTEs and 1.2 for those with fewer than 500 FTEs.

Nearshore Services Market Value Grows
The value of the global nearshore services market is growing dramatically, according to Everest figures. The total global services market has a value of $120 billion USD this year, with nearshore services representing more than a third (36-38%).  And the global nearshore services market has been experiencing a compound annual growth rate (CAGR) of 5-6% for the past four years. In 2008, the global nearshore services market was valued at $37 billion USD. This amount reached $40 billion USD in 2010 and should total an estimated $45 billion USD this year.

Regional Differences Exist
Different regions of the world tend to employ nearshore services differently. For example, Everest Group finds that in North America, nearshore services predominantly serve the US across IT and BPO services and have actually seen stagnant growth in recent years. In Europe, BPO clients look for nearshore European language capability and domain- and industry-specific skills, and growth in new delivery centers is much more active.

Looking at source regions, the value proposition of Latin American nearshore services is mainly around bilingual support, but they are also leveraged for F&A and IT services. Delivery center growth is much greater in the rest of Latin American than in Mexico. And Africa is an emerging geography with healthy service center growth and high future growth potential, with differences across locations in functions and source markets.

So no matter what shore is “near” to you and whether you are interested in “near” or “far” nearshoring, the advantages of time zone, culture and cost offered by nearshore outsourcing are worth investigating. Considering the impressive CAGR of nearshore services, if you don’t investigate, your competitors probably will or already have.