The Hidden Risks of Nearshoring

While many companies usually have an understanding of some of the more common challenges of offshoring work such as potential language barriers and time differences, there are some hidden risks of nearshoring that may not be so obvious – but can have a detrimental effect on your bottom line. Things like political instability, economic uncertainty, and crime can have serious consequences and these geopolitical issues can have much larger ramifications on your business.

There are many unknowns nearshoring to a foreign country that are not minor annoyances but can completely derail a project or partnership, which is usually not considered when working with a company in the United States. When you outsource your work to developing countries, these things that are seen on the news can have a direct effect on your life and business.

If you are considering offshoring some of your business to Central or South America, it’s important to be aware of the political and economic landscape and how it may affect your business. Discover some of the risks of outsourcing to Latin America and how Sparq can help eliminate these risks.

The Effect of Political Unrest on Nearshoring

If you’re considering outsourcing to Latin America, it’s important to understand the potential negative impact political instability can have on productivity, quality, and relationships.

Countries in Central and South America are no strangers to governmental instability, and a military coup can have serious ramifications on the people and businesses there, potentially affecting your business if you offshore work there.

Political instability can hurt everything from profits & operations to the working conditions of the employees. Political riots around elections can shut down cities and newly elected officials can dramatically change the political landscape overnight.

While it may seem like politics are detached from other economic considerations, the reality is that no business can afford to ignore political factors that often shape the external environment of the business.

How Can Economic Uncertainty Affect Outsourcing?

While the economy in some Latin American countries is developing, growing pains can quickly become more serious and put entire industries and businesses in jeopardy. A country can swing drastically in just a matter of years from a developing region, to one where people are seeking asylum and refugee status in neighboring countries. As a result, your business could be wiped out of employees.

For example, the Argentinian peso (the world’s weakest currency for the past two years) continues to fall, and businesses and household finances in Argentina are feeling the strain. Right now, businesses are having a hard time giving quotes or financing amid the currency disorder. Inflation was above 30 percent in 2018, and thanks to an especially weakened peso, spiked above 50 percent in 2019.

In Venezuela, inflation is out of control and the currency has become practically worthless. Locals – aka the people who would comprise your workforce – struggle to buy essentials, as a month’s wages will buy a loaf of bread, two liters of milk, and four cans of tuna fish.

The United States, on the other hand, is not accustomed to economic swings this drastic in the modern era.

There are many things to consider when working with countries whose future is unclear. For example, do you pay in local currency or USD? How will a sudden change in exchange rate affect your contract and your partnership?

These types of situations prove to be a challenge when offshoring business efforts to regions with volatile economic climates.

Crime and Danger Considerations

Latin America has been dubbed the murder capital of the world. With just 8% of the world’s population, Latin America accounts for roughly a third of global murders, where lethal violence has grown steadily since 2000. To put that in perspective, nearly one in every four murders around the world takes place in just four countries: Brazil, Venezuela, Mexico, and Columbia.

This has led Latin America to a crisis, costing the countries 3% of annual economic output. This is, on average, three times the level of developed countries.

While many of the murders are gang/cartel related and less likely – but not impossible – to affect traveling business people, kidnapping is not uncommon for tourists perceived as “wealthy” to be held for ransom. Will it definitely happen? Of course not – but it’s more likely in Rio than in Oklahoma City.

Ongoing violence and petty crime in many countries can have near and long-term impact on your business, even if it’s not politically motivated. Your business may be less inclined to send employees to these areas, reducing important local training and vendor management time. This adds risk to service delivery and long-term success that can otherwise be fostered by the cross-pollination of US clients and offshore providers.

Petty crime, such as having a laptop or smartphone stolen, or being mugged, is a much more common threat for traveling business people. While not life-threatening, the technological security and general safety of employees is a definite concern.

A Safe and Steady Alternative to Nearshoring

While outsourcing to Latin American countries can seem cost-effective, there are many unique challenges. When looking to outsource your efforts, it’s important to consider these risks and how they’ll affect your business. The liability and uncertainty of these countries can prove to be a crippling challenge for businesses who may not have ever considered these issues.

Onshoring with Sparq

Fortunately, there is another alternative to offshoring that provides a more stable partnership for everyone involved. Sparq has brought jobs back to the United States by offering a wide range of software services from our strategically located development centers. From agile software development, supporting enterprise applications, the provision of cloud solutions to business intelligence, and more – Sparq conquers the unique challenges associated with offshoring, while still being an affordable option for US companies. Our development centers are in smaller regions across the United States, where the cost of living is less expensive. Not only will you receive high-quality services, but you’ll enjoy cost savings in comparison to larger metropolitan areas.