Nearshoring as a way to outsource critical business processes and product development is nothing new to key markets such as software engineering, yet emerging technology, market trends and government mandates are sparking a renewed interest in it as a means to cut costs, enable greater collaboration and provide a competitive edge.
The business benefits of outsourcing software development remain as strong as ever. Given the rapid pace of technology advances, companies are under pressure to continually enhance software to improve business value, provide market differentiation and competitive advantage. Emerging solutions that incorporate machine learning, chatbots and other smart apps are complicated to build and maintain, requiring the specialised expertise of software engineers and data scientists. Because of the expertise that’s required for these cognitive solutions and the rapid fire of product enhancements, it’s no longer feasible for companies to bring all of the software development work in house and be able to remain laser-focused on their core business.
Additionally, the growth of the cloud has drastically fueled the rise of outsourcing. With the new generation of cloud and its proliferation in companies of all sizes and in industries, organisations are more comfortable hosting their data and apps in servers outside of their own data centres. Along with this trust, companies are also more amenable to moving their software development outside the confines of their physical environment.
Addressing challenges in traditional offshoring
Despite the growth in outsourcing, there have been bumps in the road in traditional offshoring engagements. In some areas where the cost of labour is cheap, the workforce might be less educated and skilled, and they may rely on outdated frameworks and technologies, resulting in lower quality standards. Another customer concern is that some offshore providers outsource their work to other providers, unbeknownst to them. Additionally, with the rapid pace of business, distance can be a problem. The development of complex apps often requires close communication between the customer and offshore teams. While a major reason for the failure of software projects is a breakdown in communication, it’s hard to have real-time communication with an outsourcing partner when they are located several time zones away.
Now that most companies have accepted why outsourcing is a good thing, the decision to outsource has become more about where and how to outsource. Depending on where your company is located, nearshoring can refer to many different places. European companies often nearshore to Eastern European countries such as Romania, while in the USA key regions for nearshoring include Mexico, Costa Rica, Colombia and Argentina. Companies that conduct nearshoring from the USA typically experience less integration and fewer cultural differences and other risks than European and APAC companies that more frequently outsource to neighbouring countries with significantly different languages, currencies and regulatory requirements.
Nearshoring offering key business benefits
Many companies are looking to nearshoring providers to address some of these offshoring challenges. Because companies and their service providers are closer in proximity and often in the same time zones, greater collaboration is possible as well as communication in real time. These service providers are able to be more responsive to customer issues and offer a turnaround time that more closely matches the customer’s schedule. Additionally, with nearshoring there is often a closer cultural match between the company and provider; a shared expectation of standards, education and skills; and fluency in the same language.
To help ensure that they have a positive engagement, companies should consider the following in their software development outsourcing strategy:
• The education and skill of the workforce
• Specialised expertise and resources
• Language and cultural barriers
• Alignment between your approaches
• Proximity and the need for ongoing communication
• Regulatory issues (for example, in the USA government mandates require that work for many aerospace and defense contractors and healthcare providers is conducted by US citizens, which would include US territories such as Puerto Rico and the US Virgin Islands)
Given today’s fast pace of technology innovation, companies know they can’t do it alone and are realising the benefits of outsourcing in its many forms. Yet, we can expect to see the nearshoring segment of the market take off at lightning speed as companies begin to more fully grasp the added value of having a partner closer to home.