This is probably not the first time you’ve come across the topic of Offshoring and Nearshoring, and certainly won’t be the last.
With the acceleration of technology and the need for quality software development services, it makes sense for companies to consider finding the right talent for the job outside their immediate geographical area.
In this article, we'll explore the pros and cons of Nearshoring and Offshoring and discuss how they can impact US contracting in today's landscape.
Whether you choose to offshore or nearshore your efforts, one thing is certain; outsourcing may be the solution to the many changes we see within the economy and industry. And that sentiment is shared among many, as up to 80% of companies in North America are seeking outsourcing as a means to aid in business operations.
Inflation is soaring, banks are collapsing (cough Silicon Valley Bank), and the tech industry is seeing massive layoffs that seem to be never-ending. But who can blame the companies that have laid off the thousands of people they hired during the boom we experienced during the pandemic? Okay, maybe we can blame them just a little.
Some of the biggest names in tech are scaling down to adjust to changes and demands post-pandemic. However, just because companies are scaling down, it doesn't mean that the need for quality, affordable, and expert talent isn't needed, and outsourcing can easily meet that need.
Offshoring refers to hiring an external company or individual to perform a specific task or function. It often involves sending work to countries with lower labor costs, such as India or the Philippines. And there’s no shortage of choices as India alone is home to more than 4.3 thousand IT outsourcing companies.
Top 5 tech Offshoring Countries and the number of development firms they include according to Clutch.co :
India - 4,336
Ukraine - 952
Poland - 1,158
Pakistan - 585
Although there are thousands of options to choose from, the big advantage of Offshoring is cost savings. Companies can save money on labor, infrastructure, and other overhead costs by contracting work to a lower-cost provider. But it’s not all roses. Offshoring comes with many challenges that may be hard to overlook such as, lack of communication and understanding, cultural differences, time zone, and last but not least, the expected quality of deliverables.
Let's look at the numbers, shall we? Global spend on outsourcing could grow up to $731 billion this year alone. Is that really a surprise, though? More and more companies are beginning to see the value of offshoring in their wallets and production numbers.
With the cost to hire expert talent in the US becoming increasingly higher, businesses are looking elsewhere to meet their needs. And ultimately, the choice to outsource comes down to cost savings.
Differences in the cost of living and lower wages allow businesses to maximize their resources, reduce their expenses and increase their profits. For example, companies outsourcing to the Philippines saved up to 70% in labor costs! Those cost savings can be funneled into other business needs that drive an increase in revenue.
You also have the flexibility to augment your staff depending on need. By hiring additional help only when you need it, for only a specified amount of time, companies relieve themselves from employing a team in-house, which may not always be necessary. In this manner, staffing is much more cost-effective.
We mentioned above that many businesses look to offshoring to access expert talent within respective areas. When working only with local talent, you limit your access to a more specialized talent pool.
Therefore, Offshoring allows companies to access specialized skills and knowledge that may not be available in-house. For example, a company may outsource IT services to a provider with expertise in a specific technology or programming language, within a certain industry.
The challenge here is to find the right talent for the job. Do you have any idea how many software development companies there are in the world? Over 26.000 according to Clutch.co.
Now imagine sifting through all of them to find your perfect match, yeah seems impossible right, and not to mention time consuming. From all the meetings, to the many inquiries concerning workflows, developer capabilities, and timelines, finding the right talent is a job in itself.
When it comes to Offshoring, companies are searching for ways to get the most bang for their buck. They’re in search of teams that can turn out results at rapid speed. This is great for those who want to launch a product to market or need to correct problems in a short time frame.
Imagine being able to start a project without any training or additional education needed for your staff. Offshoring gives companies something they all wish they had more of, time.
You can save so much time when you don't have to invest in training or coursework to get your teams up to speed for any particular project. You also can onboard your outsourced team quicker due to their previous knowledge and expertise.
For larger companies, Offshoring affords them the opportunity to address many technical challenges at once. Not all problems are the same and each area requires an expert to get the job done and done fast.
It simply doesn't make sense to employ six specialists just to see your project to completion. And just as it’s time consuming to vet tech professionals it’s even more costly to hire, onboard, and train them for their positions. Instead of driving your HR team crazy, you can hire an offshore team that covers all your bases and is ready to go from the start.
Are you tired of hearing the word scale yet? Well, get used to it because it's definitely here to stay, as scalability is of massive importance to the growth of any tech business. Offshoring software development can help companies scale their operations quickly, efficiently, and with greater ease.
By contracting work to external providers, US companies can avoid the costs and risks associated with hiring and training new employees and all the headaches that come along with it, not to mention your HR team won’t hate you.
Staff augmentation through outsourcing is a hot topic during the current shift in the tech industry and is a way companies can get more value for their buck.
What we’re now witnessing is downsizing within the tech industry due to the decrease in demand post-pandemic. Oh and let’s not forget the massive hype that AI and machine learning are bringing to the table. Further changing how software development shops approach staffing.
Scalability can be applied to any aspect of your business, from staffing to marketing, software development, design, and your digital ecosystem.
Technology is normally thought of as innovation, but how do we come to such innovation? Through the exchange and discussion of ideas, duh! People can do extraordinary things when they come together to solve a problem. And those ideas usually come about in collaborative environments.
Working with teams from different countries, backgrounds and levels of education gives you increased access to how other people’s gears turn. Innovation of thought solves problems before they are realized and can do so in the most efficient ways possible. If we didn’t challenge each other intellectually, and ask questions, we wouldn't have made it out of the stone ages.
While Offshoring has many upsides, it doesn't come without its challenges. However, these challenges can be curbed by understanding your needs and vetting your Offshore software providers.
Vetting development companies from other countries is no easy feat. It takes weeks or months to find the right software development team for the job. However it’s the most important part of the process. Though time consuming it will give you a better shot at finding the right partner.
Vetting an offshore software development company involves several steps to ensure that the company is a good fit for your project and has the expertise, experience, and resources to deliver high-quality work.
The process typically includes but not limited to:
- Researching the company's background
- Checking their references, portfolios and industry experience
- Assessing their technical capabilities
- Evaluating their communication skills and project management processes
- Costs: estimation vs time and materials
- Availability and scalability
It's also important to establish clear expectations, timelines, quality standards, and to establish a solid contract with the company to ensure a successful collaboration.
When considering an offshore development team, time zone is definitely an issue for many US companies looking to outsource. With up to a 12 hour time difference, it’s hard to see how any partnership could be successful.
Although some can make it work for them, it does not come without extreme dedication and commitment from both sides. That can put a strain on the partnership, as more effort is being put into communication than creativity and innovation.
Quality control can be difficult if your needs and expectations are unmet. This is especially true when Offshoring to countries with different cultural norms or work practices. Everyone has a different way of working and delivering results, and to ensure you are on the same page with your team, it's imperative that you choose an offshoring partner who falls in line with your company's work ethic and culture.
For this, it’s highly recommended to engage with your Offshoring partner within a short-term time frame (a month might be enough) before committing to a long-term contract.
It can't be said enough that clear communication is a must, both internally and externally. Offshoring means you'll work with those who speak a different language than you and use a different vocabulary or terminology.
Language barriers can be tough to overcome and can slow down processes, while miscommunications can lead to errors and a number of other issues.
However, it is not just language that’s of importance but communication on every level. Active listening, comprehension, and written communication are all factors in how well you’re able to collaborate with the software development teams that you work with.
Assess this by meeting with the members that you’ll be collaborating with to get an idea at how well they are listening and responding. You don’t want someone to keep blabbing on when you have stated you get the point and are ready to move forward in the conversation.
Do you know what else is a hot topic at the moment? Security. With a more globalized workforce and increased collaboration between regions, security is something to be considered. 68% of outsourcing companies worry about data privacy and legal compliance.
Outsourcing can create security risks, particularly when involving sensitive data or intellectual property. Companies must ensure their providers have adequate security measures to protect their information.
But hold up! Let’s not forget there are government regulations and laws that must be abided by to remain in compliance and operate legally. The FCC, Federal Communications Commission, is the main governing body in the US that oversees law regarding technology. Therefore, it’s essential for your offshore development partner to understand the importance of security and regulatory compliance.
Now that we got Offshoring out of the way, let's focus on Nearshoring, a type of outsourcing involving contracting work to companies or individuals in nearby countries.
They typically operate in the same time zone or a similar cultural environment. For US companies, this often means contracting work to countries in Latin America, such as Uruguay, Argentina, Mexico or Brazil.
High-quality tech talent at competitive prices, on the same time zone, with an outstanding english level, period.
However, when discussing proximity we’re also talking about how close Nearshoring teams are in culture. Because closeness is not determined only by miles and we don’t have to walk a thousand of them to get to know you. It takes more than great communication for outsourcing partners to succeed and build relationships of value.
Providers in nearby countries often share a similar cultural background, which can make it easier to work together and build strong relationships. It can also aid in the speed of delivery, quality, and success of company projects.
For example, Uruguay is committed to encouraging youth to consider STEM a viable career choice. In 2007 Uruguay launched Plan Ceibal in which every student receives a laptop or tablet to introduce the students to computer science and other technology fields. This allows the country of Uruguay to build a culture around innovation, and forward thinking making them a vital contender in software development outsourcing services.
By working with providers in nearby countries, companies can reduce communication and cultural challenges while still enjoying quality services at lower costs.
Time zone compatibility is a huge priority that has been echoed by those in support of Nearshoring. Providers in Latin America are in the same time zones, which can help reduce delays and improve responsiveness. It's also a favorable aspect when considering the hours businesses usually operate under, allowing communications and deliverables to be achieved during business hours.
If something needs to be handled urgently, you won't have to wait until 2 a.m. when your outsource team is in operation on the other side of the planet. Save yourself the dreaded anxiety of those SOS notifications by considering how soon action can be taken at any point during a project.
Development is a continuous process. By working with teams in the same time zone you’ll not lose steam as everyone is working at the same moment. If issues arise you are able to address them quickly. And when it comes to long term projects, it's imperative your outsourced team can maintain longevity through to the delivery of the project.
Nearshoring may limit the pool of available talent, as you are only considering a limited number of countries instead of a more global workforce. Demand is high and talent is wanted by a large number of US companies, therefore finding talent may be difficult.
Availability may also be a challenge, as you’ll want a provider that can start the project when you’re ready. There may be few teams that can meet that need, making the search for a development team more challenging. And while Nearshoring can be less expensive than hiring locally as nearshore IT services are 46% lower, it may still be more costly than offshoring to countries with lower labor costs.
Countries in Latin America, such as Uruguay and Argentina, offer some of the best tech talent your Bitcoin can buy, and yes, in some cases, you can pay in Bitcoin; crazy, we know! However, with the US economy in distress, it's time to consider other alternatives that can help keep your business in operation long past the difficulties we are currently experiencing.
Looking for a software development outsource provider can be challenging and overwhelming, with so many options (more than 2,200 to be exact) in Latin America to choose from alone!
Hey, don’t panic! Rooftop Tech Hub can guide you in choosing the right team for your next project. We take care of the challenging and time consuming vetting process and present you with the best options in <3 days, so you can focus on what really matters, creating innovative and successful products.
Our expert tech partners will bring their best from day one. We know this because we have cultivated a culture that values building long-term relationships that drive a competitive spirit, innovative thought, and trust. Whether it's software development, artificial intelligence, or product design, you can be sure you'll receive the quality and results you are looking for at a price point that's right for you.
Thanks for reading!