What is Nearshore outsourcing? How does it work? Is it good for my company?
Probably as a CIO you started asking yourself these questions. You may have heard of Nearshore but still don’t get the whole picture.
Through this post, we want to dive into the many different aspects of Nearshore outsourcing which makes this strategy unique. Hope we make it clear for you, once and for all!
What Is Nearshore Outsourcing?
According to techtarget.com, the definition of Nearshore outsourcing is:
The practice of getting work done or services performed by people in nearby countries rather than in your own country. Many companies in the United States, for example, outsource work to Canada and Mexico. Geographic proximity means that travel and communications are easier and less expensive, there are likely to be at least some commonalities between the cultures, and people are more likely to speak the same language.
In simpler terms, any company in the world (not just in the US) can hire a remote team of skilled professionals from a nearby country to delegate software development tasks. Usually, these workers are in similar time zones thanks to their geographic proximity.
This is one of the easiest ways to expand your team remotely, achieve scalability, and stay competitive. Nearshore can definitely be a game-changer for your business in these times of pandemic and social isolation.
Difference Between Nearshore, Offshore, and Onshore Outsourcing
Let’s take a look at the main differences among Nearshore, Offshore, and Onshore outsourcing:
- Nearshore refers to outsourcing to countries located in close proximity with similar time zones. A nearshore location for the United States would be Mexico.
- Offshore refers to outsourcing to far-away countries with considerable time zone differences. An offshore location for the United States would be India.
- Onshore refers to outsourcing to service providers located in the same country.
Understanding Different Outsourcing Models
Also for the outsourcing process, you can count on different options as the following:
- Staff Augmentation: this model of outsourcing helps quickly fill the resource gap of your in-house team with remote team members managed by you directly and fully dedicated to your project for a chosen period.
- Dedicated Team: By choosing this model of outsourcing, you hire an already formed team that integrates into existing processes of your IT department and is fully dedicated to your project but stays self-managed. It is a suitable option if you have a well-established development team but need additional development force for long-term cooperation without the hustle of recruitment and management.
- Full process outsourcing: A vendor sets up the development process and takes full responsibility for the project and all related risks. Your company focuses on core business activities, streamlined development, and reduced costs of the project due to a vendor’s expertise.
Define Your Nearshore Outsourcing Strategy
You just learned about the different options you have for the delegation of software development. Here is a specific set of steps you should take when defining your Nearshore strategy that will determine your choice of outsourcing partners.
- Outline your outsourcing strategic levels and goals for better staff augmentation
Typically, businesses have three strategic levels when outsourcing:
Business enhancement: This approach’s main goal is to improve services through process improvements, new technologies, and reengineering. Businesses typically outsource non-essential work to acquire in-depth expertise in a more flexible and cost-effective way. Outsourcing gives them access to the top experts and tools, without the pains of in-house recruitment.
Efficiency: Used when the key objective is to keep the existing processes and performance as they are, but with costs reduced.
Transformation: Businesses want specialized consultants to help them update or reinvent their existing processes and/or tools, with process automation being one of the most sought-after transformations.
Finally, you have a better idea of outsourcing strategic levels. Now you have to define your outsourcing goals and needs to save money, increase productivity and scale auxiliary staff.
Ask yourself these questions:
What are my key business objectives
Is my goal to cut costs?
Do I need to improve the business or its operations?
What is our competition doing and how can we increase our competitiveness?
- Adjust Your Budget For Unexpected Costs:
You should know any business prepares its monthly, quarterly, and annual budgets, but there are times when unforeseen circumstances can come out and may require more skilled labor than there is on staff at the moment.
In general, operational managers should budget for different business scenarios that arise from working with the nearshore outsourcing model.
Finding the right balance between affordability and expected results is the key. Identify hidden expenditures to provide your business the ability to decrease or increase supplemental staff when needed.
- Mitigate Risk
Your company has to address the risks outsourcing brings. The main ones are:
Control and trust: To reduce this particular risk, it is advisable to create an internal document that would outline all the main work procedures and standards of workflow that all sides must adhere to. If you outsource software development you need to implement safeguards that will ensure the delivery of a product whose integrity is not compromised.
Quality issues: Outsourcing carries a lot of risks that refer to quality issues. You can mitigate them by working with a nearshore partner that has a proven track record of quality control with past clients and that has processes in place to resolve these.
By mitigating these risks you can reduce your financial exposure and increase the efficiency of your nearshore strategy.
- Track Progress And Added Value
When a company outsources its work processes, it should establish some clear key performance indicators (KPIs) in order to monitor the advantages, disadvantages, and general results of its outsourcing efforts.
In case the predefined expectations are met, you should still actively track the outsourcing progress to further improve on the model that yields good results and continue the outsourcing success. Otherwise, corrective steps can be implemented if these expectations are not met.
- Create Strong Communication Channels And Strengthen Relationships
Companies that want to hire augmented staff that works remotely need to establish channels that will enable responsive, transparent, and responsible communication. By creating strong communication channels between you and your outsourced partners needs to address any issues professionally and promptly.
What Are The Benefits of a Nearshore Strategy?
Unlike offshore IT outsourcing, which means delegating software development to a company located in a distant country, nearshore outsourcing offers several benefits:
- Cost efficiency: The lower cost of nearshore outsourcing is the main factor for US companies to choose nearshoring. The rule of thumb is that in the most common roles, the cost in Mexico is 50% of the USA.
- Little or no time zone difference: Only a 0–2 hours time difference provides for better synchronization between in-house and nearshore teams. Time zone compatibility with a nearby country as Mexico is fundamental to develop quality software. When you’re working with a team that operates in a nearby country, neither your in-house, nor nearshore developers will have to work at night, so their risk of burnout will be much lower, and in turn, the quality of the end product will be much better.
- The similarity in work culture: A partnership also needs team members to be culturally aligned with your values, goals, and overall working culture. That’s something you can expect with nearshore developers because they come from a country or region that’s close to you, so they see work in the same way as you.
- Compensation of staff shortages: Talent is scarce nowadays. Adding a Nearshore strategy opens your possibilities to a large talent pool. Mexico has close to 1 million IT professionals in the market while Latin America accounts for over 3 million. Nearshore software development companies are the best option to partner with for expanding your team. This process is naturally faster and easier with nearshore outsourcing due to the same language and cultural affinity.
- Improving company efficiency through load distribution to outsourcing companies: If your company has large software development and maintenance needs, you can outsource its different integral parts to a nearshore software development company and rearrange your core team for the main tasks. These hired teams will work as sub-teams of your projects to some extent and will add flexibility to your development and maintenance process.
- Intellectual property laws are similar to the US: For companies whose key product offering is a software product, or whose application contains proprietary functionality, protecting your intellectual property is critical. This is one of the riskiest points when it comes to offshoring software development. But here lies another advantage of nearshore. Many nearshore countries, like Mexico, have strong intellectual property laws that closely resemble the US. In addition, many nearshore partners are headquartered or have a legal presence in the United States, providing you with the exact same protection you count on at home.
How to Make Your Nearshore Strategy Work?
The way to make nearshore strategy work is through communication. The exchange between the team and the manager is of supreme importance in any project. Communication that is aligned, transparent, and guaranteed everyone’s visibility is the critical element for success.
The practice of nearshore also needs to align with the company’s business objectives. To achieve alignment, you need cultural proximity, proficiency in the language, and a thorough understanding of the market. Ideally, the company should choose its nearshore partner while taking into account all these requirements.
Outsourcing to Mexico: The Ascend Way
For companies based in the US, outsourcing to Mexico is a unique way because it includes more benefits than any other option available. So choosing the right nearshore partner is key. Technology and expertise are essential to successful projects.
We at Ascend would love to help your company with Nearshore outsourcing to Mexico and achieve your business objectives.
Our competitive advantages are the 20+ years of experience in the insurance industry, a reliable talent pool of skilled IT professionals, cost-effective solutions according to your needs, and multiple facets of services like Legacy Systems Modernization and Maintenance, Quality Assurance and Software Testing, etc.