Nearshoring vs. offshoring

More companies and entrepreneurs are turning to “nearshoring” and hiring workers closer to home for increased productivity.

Dateline: Bucharest, Romania

Romania is one of the lowest priced countries for hiring workers in Europe. While the average Swiss worker earns close to 4,500 euros per month, Romanians earn just 432 euros: just one-tenth as much.

In the European Union, only Bulgaria is less expensive on average.

Here’s the interesting part: Romania is perhaps one of the most attractive places for hiring talent for everything from technical and website work to data entry.

In fact, I’m currently compiling a “standard operating procedures guide” on the best business jurisdictions for entrepreneurs in Europe for my private clients, and Romania is already ranking rather highly.

Personally, I’m not a fan of “cheap labor”. I want cost-efficient quality labor. So much so that I once asked if hiring offshore workers was a “dead” idea.

As much as I advise against setting up shop in the United States, there are times when it’s more cost-effective to hire a virtual assistant in the United States than in the Philippines because the extra work output will surpass the higher cost.

In fact, more and more entrepreneurs are telling me they are no longer hiring in the Philippines, Southeast Asia, or India. An increasing number of high-end entrepreneurs are favoring eastern European countries like Ukraine, Moldova, and Romania for outsourcing.

This concept of “nearshoring” is gaining steam as businesses realize that productivity is even more important than cost savings.

Nearshoring is somewhere in between “onshoring” and “offshoring”. Offshoring is, of course, hiring call center agents in the Philippines or data entry people in Bangladesh, while onshoring is the practice of repatriating jobs to the western world that every “fairness”-minded politicians craves.

With nearshoring, cost and productivity are equally considered. One of the speakers at our recent The Nomad Society meeting in Monaco shared that Malta is one of the benefits of nearshoring, as some iPhone parts and other rather technical components have been sent there for manufacture after quality control issues further overseas.

It’s a lot cheaper than manufacturing the stuff in Germany and involves less government nonsense than setting up a factory in Spain or France. And the fact that Malta offers some intriguing tax benefits right in the heart of Europe is a benefit, as well.

Similarly, a lot of German companies as well as Amazon are shipping lower-rent tasks right over to Poland.

For entrepreneurs who need virtual assistants or other non-technical labor, Romania is one of the my top picks for several reasons:

1. English fluency is excellent.

I’m not saying everyone here speaks English. Far from it, especially in the older generation still living off the fumes of the past communist regime.

However, there are a number of American companies here in Romania and plenty of Romanian workers who have been very well-trained in American English and even American culture. It’s easy to have a conversation with smart young people here and never have to repeat or explain yourself.

2. Costs are as low as offshoring.

One of the reasons I tend to be a contrarian is that I believe the herd mentality removes value and drives up prices. Ever since Tim Ferriss wrote The Four Hour Workweek, people have been hiring Filipino assistants to help them build their muse and handle tedious tasks.

We frequently talk about the benefits of investing and doing business in Asia, but the fact that Asia is emerging at a rapid pace also leads to higher prices… including on labor.

Forget the Philippines where most young people speak at least passable English; I had trouble finding someone to work for $500 a month in Vietnam, where one of my friends believes is the “next frontier” of offshoring.

There are some people in Vietnam who speak decent English, and you can find them for $500 a month. If you’re willing to setup a physical business there, I’m sure you can find them for less. But it can be a challenge.

For that same $500 a month, you can hire a Romanian whose equivalent English skills are better on average, and whose culture is more closely aligned with yours. Romanians are also highly tech savvy, considering the region’s success in mathematics and technical education.

By contrast, Romania isn’t really any more expensive than non-EU states like Albania or Serbia. This can be a real benefit if you want to hire staff in a physical work environment; starting a company in the EU can be used to get you European Union residency and future citizenship.

3. Internet speeds are blazing fast.

Romania has some of the fastest internet speeds in the world, rivaling those in Tokyo or Hong Kong. In fact, short of plugging directly into a fiber line, you can’t do much better. I got download speeds as high as 101MB/second in my apartment in Bucharest yesterday.

Even if your staff works remotely, they need fast and reliable internet to get their job done. Internet service is Romania is damn cheap by US standards especially considering speeds are far better.

That’s quite something considering it would cost you a lot more to hire those workers in the Land of the Free.

Of course, Romania isn’t the only place to benefit from higher quality affordable staff using nearshoring. In Southeast Asia, countries like Malaysia and even Singapore offer lower cost labor than you may be used to in the US or Europe, all with less government red tape.

Those countries compare rather favorably to the Philippines when you consider that almost all young Malaysians, for instance, are well-educated and speak pretty good English at a starting salary of barely $600.

In the Americas, smaller pockets in countries like Mexico and Panama offer more affordable labor not just for manufacturing, but for technical and financial work.

While I obviously believe in offshoring your business, your investments, and your capital, I am seeing a trend away ofshoring labor. There will always be a need for cheap tasks being done in Bangladesh or Nepal.

However, entrepreneurs I know have gone from “hire people for $1” to “hire people who can get the job done with no nonsense” in order to stay in business and grow. It’s the abundance mentality: invest a little bit more a little more smartly, and potentially get a lot more in return.

As with anything, you need to understand WHERE the trends are moving and align your business interests accordingly.

Andrew Henderson

Andrew Henderson

Andrew Henderson is the world's most sought-after consultant on legal offshore tax reduction, investment immigration, and global citizenship. He works exclusively with six- and seven-figure entrepreneurs and investors who want to "go where they're treated best". He has been researching and actually doing this stuff personally since 2007.
Andrew Henderson

Did you like this?

I've helped hundreds of guys develop and implement legal strategies for lower taxes, dual citizenship, and lifestyle freedom.   Would you like to be next?

×