Final answer:
Outsourcing production or services to nearby locations is known as 'nearshoring.' It is a subset of outsourcing that aims to leverage cost advantages while keeping operations geographically closer to the company's home base for better coordination and management.
Step-by-step explanation:
Outsourcing production or services to locations near a firm's home base is called nearshoring. While outsourcing refers to the process of hiring outside contractors, sometimes abroad, to perform tasks a company once performed internally, nearshoring is a subset of outsourcing that specifically refers to contracting out work to a nearer location, often to leverage cost advantages while maintaining some degree of geographical closeness and similar time zones.
For instance, companies in developed countries like the United States, where the cost of labor is higher, may outsource tasks to companies in Mexico or Canada. This practice allows firms to benefit from cost savings due to lower wages in nearby countries while still enjoying the convenience of proximity for management and coordination purposes. It is vital to understand that while outsourcing can also involve offshoring, the two terms are not synonymous. Offshoring involves relocating operations to a distant country, primarily for labor cost reductions, which can result in significant changes in job availability in the originating nation.