Shore sourcing, sometimes referred to as nearshoring, is when a business moves part or all of its IT processes to a country nearby in order to have cheaper labor and expenses. Think of a company in the U.S. moving a factory to Mexico to take advantage of lower salaries, utilities and building expenses.
Is it Good for the Economy?
Unfortunately, shore sourcing is only good for the business that moved. People lose jobs when the company moves. Even if only part of the company moves, people who had been doing that job are now unemployed. It does not help the economy because these people now have no money to put back into the economy.
Does the Business Save Enough to Counter any Loss of Sales?
The amount of money that must be paid to foreign workers is so low, the company saves a big amount of money. Losing business due to causing economic strife will not come close to the amount they save on labor costs alone. Add to that the lower building expenses, utilities and the taxes, they save too much to bring the work back to the U.S.
Is Shore Sourcing only Done by American Companies?
No, shore sourcing is quite popular in Europe. Germany nearshores to Bulgaria. While the economy in Bulgaria gets a huge boost due to all the work now available, people in Germany are left struggling to find a job. Other countries that receive work include Romania, Poland, Portugal and the Czech Republic. India is used quite often for shore sourcing because of the number of people who are very good in the IT area. Many even studied in the U.S. or other countries to get the knowledge they need to go back to India and head the department. Companies in the U.S. send most of their work to Canada, Mexico, Central America and India.
Problems with Shore Sourcing
Other than the obvious problem of how the people and areas that lost the jobs feel about the company, shore sourcing is not all fun and games. In many cases, customers become frustrated when trying to contact customer service and end up talking with someone they cannot understand. A simple telephone call can turn quite ugly when a consumer needs help and does not feel the problem is going to be resolved.
It can be a tough decision for a company to make. While they will be saving a lot of money if they move the IT department to a different company, and the amount they save will make up for some lost sales, they will also be losing trust. The people in the countries they are leaving are getting tired of being looked over for work but then expected to pay the same high prices for the products. Name recognition and brand loyalty gets hurt and that is not something that can be easily repaired.