Near-shoring is a form of off-shoring where the destination country is nearer to the home office then would be the case in the more traditional form of off-shoring.
The definitions of off-shoring and near-shoring are:
- Off-shoring is defined as the movement of a business process done at a company in one country to the same or another company in another, different country. Almost always work is moved because of a lower cost of operations in the new location.
- Near-shoring is "the transfer of business or IT processes to the same or another company in a nearby country, often sharing a border with your own country", where both parties expect to benefit from one or more of the following dimensions of proximity: geographic, temporal (time zone), cultural, linguistic, economic, political, or historical linkages. The service work that is being sourced may be a business process or software development.
In general the decision to move part of a business abroad is based on one or several of the arguments mentioned below:
- Opportunities for running a business at reduced costs, because the destination country can provide raw materials, services or labor at lower costs than the home country;
- Access to the local marketplace for the products produced by the company;
- Taking benefit of particular skilled labor, not (sufficiently) available in home country;
- Production of product with an expiration date close to the marketplace;
- The destination country's location is favorable in the sense that it can act as a logistic hub for a new market;
- Companies that want to go abroad should have a thorough understanding of why they want to do so, because these reasons will be the driver for their consequential decisions: near-shoring or off-shoring, set up an own branch or a company or find a local partner, etc. These topics are further addressed in this chapter.
Off-shoring is the move of a supportive or primary business service outside the home country. In the past decade off-shoring has become equivalent with moving jobs to the Far East, especially in the production of goods and the IT sector. The biggest perceived benefit of moving services to the Far East is a reduction in costs.
The main benefits of off-shoring are:
- Cost savings
- Access to a new market
- An attractive labor market
- Can help to fulfill offset obligations.
Near-shoring is very similar to off-shoring, except for the distance (both in physical distance as well as cultural distance) between the home and destination country.The idea behind near-shoring is that it provides a more sustainable business climate because it offers the same benefits as off-shoring with fewer drawbacks.
The main benefits of near-shoring are:
- Cost savings
- Access to a new market
- An attractive labor market
- Closer communication and cooperation between the companies involved Corporate Social
Responsibility (CSR) considerations.
Compared to off-shoring, the following downsides can still be present for near-shoring and should be looked at by companies that consider near-shoring:
- Infrastructure of the destination county
- Governance of the out-of-country branch or partner
- Inefficient communications
- Expenses related to travel
Romania is an attractive near-shoring destination due to the high level of technical and language skills of IT workers, its well-developed IT industry and availability of a vast IT labor pool. The ITC market value was €7bn in 2011. Romania has more than 8.000 software and IT service companies, meaning that 23% of the active workforce is employed in science and technology.
Internationally acknowledged talent pool
- European leader and 6th in the world by number of certified IT specialists;
- First in EU with regards to the total number of Computer Science and Mathematics Olympiad medals earned, third worldwide after Russia and China;
- Around 9,000 computer science graduates/year, high percentage of manpower in advanced R&D.
- highly skilled labor force;
- highly competitive labor costs;
- strong tradition of Technical Expertise;
- exceptional geographic location;
- foreign languages proficiency;
- stable business environment;
- western European business mentality, behavior and work culture;
- availability of IT infrastructure: telecommunication lines, hi-speed internet, mobile broadband;
- 90% of the software development companies have experience on near-shoring and outsourcing market;
- Investment support of foreign investments;
- Attractive taxation (flat income tax 16%);
- Tax incentives development engineers;
- Availability of EU structural funds, which can be used for R&D and training;
- Project management expertise.
It is relatively easy to hire well-educated and well-trained employees in Romania; the Romanian education system focuses on theoretical knowledge, thus employees have a
solid background they can build on during their career; especially compared to the surrounding countries, Romanians have excellent language skills. All educated persons speak English. If needed it is relatively easy to find people that speak Russian, Italian, Spanish, German and Hungarian; the job market in Romania is lively, so when a vacancy is announced there is usually a lot of response. This enables a company to build up a team of substantial size quickly; the wages in Romania are lower; in 2012 the net wages in Romania were the equivalent of 25-75% of those in the Netherlands, depending on the industry and the employee's qualification.
Romania is part of the EU and NATO. There is a big and active international business community in Romania, which makes it easy o get support. Office space and other local expenses are cheaper than in other countries. Internet connection: Romania ranks top in Europe when it comes to internet speed.
The development technologies that should be used play an important role in the selection criteria for a near-shoring partner. Many companies, particularly the smaller ones, focus on a certain platform and/or development technology, e.g. Microsoft Windows or Linux environments. Your prospective partner should have ample experience with the required technologies and be prepared to work with them. There is a tendency among certain communities (especially the younger IT staff) to always want to use the newest tools and technologies. This can contradict with the interests of the customer, who often is dealing with legacy systems and cannot always keep all its projects updated at all times.
Due to the major influence and training by western companies as well as the western management in the ITC industry, the Romanian ITC workers are significantly more visionary, creative and independent than the average Romanian workers.
Romania’s density of software graduates per thousand inhabitants is significantly higher than in USA, it is five times than in Russia and nearly seven times than of India. The right people can ensure success of the project.
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