Globalization has changed the face of business. Companies, specifically in the technology industry, now have more options available to them, to outsource certain functions, projects, and processes. But why would a company outsource any part of its operations? As mentioned before, globalization is pushing organizations to become lean, more agile, and more competitive. This is a strategic move. It relates to cutting down on costs, delivery time, and waste while increasing efficiency, output, and profitability.
When considering outsourcing possibilities, companies tend to shift between three options, onshore outsourcing, nearshore outsourcing, and offshore outsourcing. So the first question to focus on, if you’re not familiar with outsourcing, is, what exactly is outsourcing. In simple terms, it is the process of obtaining goods and/or services from an outside supplier, by contract. When services are outsourced to suppliers located in the same country, state, or close to the hiring company, it is referred to as onshore outsourcing. Nearshore outsourcing refers to obtaining goods/services from a country with similar time zones, for example, if a US company were to outsource its services to an organization located in Mexico or Canada, while offshore outsourcing refers to the practice of hiring a vendor that is located far away from the hiring business. An example would be if a US-based organization contracted work to a 3rd party, in a different country, with a different time zone such as a UK-based vendor. It needs to be mentioned, though, that it is possible to offshore without necessarily outsourcing, for example, an AT&T customer service center in India serving American clients.
In the technology industry, the trend to outsource software development has picked up speed, and quite dramatically at that, over the past decade. The reasoning is quite simple, access to more skilled labor, which might not be as readily available within the urban city the hiring organization operates in. Nearshoring and onshoring hold many benefits for organizations opting to outsource software development:
1. Improved Communication
This is possibly the most important benefit when outsourcing software development locally as internal and external teams engage and interact seamlessly. Due to the fact that many schools in Latin America now integrate English language learning into the school curriculum, most engineers from this region speak fluent English. This is especially important when taking into account the fact that, not only English but also software development, has specialized terminology, and it is easy to get lost in translation.
2. Similar Time Zones
Operating in a different time zone than the development team means that either of the two parties, or both, would need to work an odd schedule, be up in the wee hours of the morning, and place additional focus on matters involving problem-solving, as miscommunication, lack of proper sleep, and missed working hours can all lead to reduced output. However, when the internal and external teams work in similar time zones, both parties are able to operate in normal working hours and daily hurdles can be attended to immediately. Meetings can be set up at the drop of a hat and communication improves tenfold. Both nearshoring and onshoring enable businesses to work in either the same or similar time zones.
3. Cost saving
Organizations constantly seek to lower the cost of production and/or development. Onshoring allows businesses to outsource software development to local and rural markets in proximity, with the available skill set and resources means that the hiring company can cut down on costs due to lower wages but without compromising on quality. When in-person meetings are required, it is much more cost-effective to travel to the onshore/nearshore vendor than for example an offshore vendor located in China. Though the difference in cost-cutting may not be as drastic as offshore outsourcing, a combination of the benefits mentioned here offers a higher ROI resulting in nearshore outsourcing being the better option.
4. Protect Intellectual Property
The US has strong legislation in place to protect the intellectual property of the hiring company. The hiring company places itself at risk when offshore vendors have access to sensitive data, becomes some countries do not enforce copyright laws to the same extent as the US, thus, onshoring ensures that intellectual property is protected under the same legislation and copyright laws are protected with the same vigor.
5. Quality Control and Code Quality
Onshore outsourcing and nearshore outsourcing make it easy to control quality processes and procedures. Communication is seamless between the internal and external teams, as they are awake at the same time, and in-person meetings to solve quality issues can occur quickly resulting in better turnaround times. Another key point to mention is the quality of engineers currently being produced by Mexico through effective education geared towards problem-solving and state-of-the-art methodologies and practices in coding.
6. Similar Culture
When internal and external teams share a similar culture, as with onshoring, engagement is more effortless. When engagement is more effortless, teams are more productive, communication barriers are non-existent, and output quality increases. When operating teams have different cultures, there are different values, understanding, and approaches to the development. Eastern team members may be less enthusiastic about making autonomous decisions, opting to rather wait until the next meeting, which due to time differences could slow down progress substantially.
7. Availability of Skilled Labor
Most business headquarters are located in urban cities. However, these cities may not have the required skilled labor to facilitate the desired software development. The required skilled labor, however, could be located in rural areas close to the hiring company, or in neighboring countries. Hiring these software developers can also be very cost-effective compared to hiring from the very competitive local market.
8. Infrastructure Quality
When working with external teams, it is important to work with an infrastructure that supports this way of doing business. Many US businesses have had to deal with outdated infrastructure problems from countries like India, whereas, the reliable and up-to-date communication’s infrastructure in countries like Mexico has added to its appeal when considering onshoring and near shoring versus offshore outsourcing.
9. Easier Integration with Internal Team
As mentioned before, when internal and external teams share similar values, cultures, business practices, and languages, integration becomes seamless and teams can hit the ground running. Onshoring ensures that integration between teams is more seamless as team members share the same or similar cultures.
10. Shorter Travel Times
Onshore outsourcing development teams are often much closer and easier to access than offshore teams. Due to similar time zones and proximity to the hiring company, in-person meetings are arranged much quicker and teams can meet in person more often if the need arises.
It is clear from the combination of benefits, that near shoring and onshoring pose substantial benefits when compared to off shoring. Teams are more productive faster, communication and culture do not pose a problem, and output is of a higher quality.
