Nearshoring Basics for Software Development
The Decline of Offshoring, the Rise of Nearshoring
Globalized markets provide opportunities for thinking outside the box on labor questions—or even outside borders in the form of nearshoring. The past few decades have seen a boom in outsourcing to far away places. It’s been a useful strategy for some companies looking to increase profits by reducing payroll expenses. Other companies want to optimize services by becoming 24/7 enterprises, or diversify their offerings by tapping into another country’s expertise. It’s not a totally new concept but as it evolves, it requires being informed and exercising some caution.
Customer service issues, cultural misunderstandings, and language barriers are just a sample of what can turn people off. It has in fact tarnished the reputation of offshoring. Nearshoring, however, is like Offshoring 2.0. It’s an approach to solving the implicit and explicit problems of offshoring. This article analyzes some problems of offshoring, and discuss how nearshoring can solve them. We also give some general advice about how to manage outsourcing generally.
Offshoring is a specific form of outsourcing. It is the practice of contracting a crucial business process out to an entity that offers that service as an product. This can happen internally, like when a company hires a tax accounting firm. However, when you contract this service abroad, it’s offshoring.
Offshoring gained popularity with large companies in the past 30 years through the promise of increased profits. Labor costs in less developed countries are lower, and companies sought a ready-made workforce abroad to become more competitive. The most popular countries for offshore services were India, China or other parts of Asia. The popularity of these locations gained infamy via pop culture, which was a reflection of some it’s problems. Offshoring in far away countries has drawbacks like bad-to-fair English, more cultural differences, and a lack of oversight. It may have hurt the reputation of some of the earliest companies to embark on this trend.
Bringing Offshoring Closer to Home
Nearshoring is the practice of offshoring to a country that is closer geographically to a company’s headquarters. The term “closer” can mean different things: a shorter flight away, or in terms of time zones. It could also refer to close cultural connections, having access to similar entertainment, products and lifestyles. While these closer places may not be as low cost as India or China, they do offer some advantages that make up for the difference.
For the US, appropriate nearshoring locations would be Mexico, Canada, or other parts of Latin America, especially those that are in the same time zone going north to south. For Europe, this means looking towards Eastern Europe or other less expensive countries in the EU, or parts of Africa.
Advantages of Nearshoring
Nearby countries tend to have fewer language barriers, be culturally similar, and run on similar time zone schedules. Management can travel there more often to provide necessary oversight, or help build the company culture. For the software industry, it also means taking advantage of skilled and talented developers in their home countries without having to navigate the high cost and often fraught process of U.S. immigration. It’s a win-win since people can maintain their lives in their home countries while using their maybe underutilized development skills .
Because of the close cultural ties, and even familial connections between countries, many people have stronger English speaking skills. Many countries in Latin America put a large emphasis on English language instruction, which means that it’s easier to find people who can speak directly to potential or current clients. Since a lot of pop cultures goes quickly between North and South America, you’ll find people with closer cultural affinities.
Some things to be wary of when looking for a country for nearshoring operations is political stability, the work ethic within the country, and the available expertise or competition for workers. Since some countries of Latin America are much smaller, political effects tend to be immediate, so it’s important to pick a country that has a reputation for stability, if not necessarily prosperity. Work ethic is important as well, and there may be a cultural difference in how people perceive their rights as workers. For the software industry, there may also be a challenge in finding workers with the kinds of skills you need. Those people generally find more opportunity in their own countries or abroad because they are in higher demand, so you may have to compete with other companies for their skills.
It may be the case that you may want to start small, looking for simpler processes to be outsourced initially. More complicated projects could remain at headquarters until you have a strong team to work with. You may also need to nurture your workforce and develop their skills in house in order to increase capacity and further your mission.
Just as in any aspect of business, there will inevitably be problems, especially initially, with reaching all of your company’s goals in a offsite environment. In order to help reduce these problems there are some steps that you can take.
- Provide training where necessary: Training can beneficial to the company culture, helping employees understand your values, while at the same time translating into skills that can be used on the job.
- Provide oversight where necessary: It’s important to keep a firm eye on what’s happening at the offsite location. It’s more than likely that you’ll have a manager or supervisor with whom you work closely to help maintain your vision. Be sure not to micromanage because it’s also important to confer trust on your team.
- Create and maintain schedules: It’s extremely important to make sure that everyone knows what you expect of them. It’s also important to plan ahead to be sure that those expectations can be met. For example, you should be aware of and respect the holidays in one country vs. the base country. A lack of planning can mean that deadlines come up at a time when the offsite country should be on holiday, creating unnecessary stress and friction.
- Create and maintain standards: Workstyles can be different from country to country and in order to make sure that those differences don’t affect your work, it’s important to maintain and document certain standards. One example is sexual harassment. Certain countries may have more lax standards when it comes to comments that might be considered off-limits in the base country. Be sure that everyone is aware of those differences so that there aren’t any problems in the future.
Nearshoring clearly creates attractive options, especially for software companies and startups. A software startup may have less initial funding and may need to be smarter about how to spend its dollars in order to develop the best software possible. Fortunately, there are companies, like WebCreek, for example, that do all the legwork for you, finding the best and brightest in the industry to augment companies’ development services.
The best advice to those who wish to explore nearshoring as an option: Do your research! Look before you invest in a nearshoring option. While it could be difficult to apply initially, it could also be the best choice for your company.