Onshore, Nearshore or Offshore – What’s Your Optimal Sourcing Mix

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[av_heading tag=’h3′ padding=’10’ heading=’Peter Horsten’ color=’custom-color-heading’ style=’blockquote modern-quote modern-centered’ custom_font=’#ffffff’ size=” subheading_active=” subheading_size=’15’ custom_class=” admin_preview_bg=’rgb(255, 255, 255)’ av-desktop-hide=” av-medium-hide=” av-small-hide=” av-mini-hide=” av-medium-font-size-title=’55’ av-small-font-size-title=’34’ av-mini-font-size-title=’21’ av-medium-font-size=” av-small-font-size=” av-mini-font-size=” margin=” av_uid=’av-qaj7xg’][/av_heading]

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With there being literally no technical obstacles when it comes to cooperation between companies, choosing a partner to work within any part of the world is easier than ever. Oh, is it, really? you might say sarcastically. You have probably heard numerous stories about issues with outsourcing IT- development and maintenance.

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Does it mean hiring a team to work for you remotely should be treated as a last resort when an organisation needs extra support or is looking to save time and money? The good news is it doesn’t. But let’s start from the beginning.

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Why has outsourcing become a need?

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For the most of the 20th century, the prevailing model for the majority of enterprises was a large integrated company possessed of all the necessary resources and the ability to manage and control these on its own, preferably onshore on their own location. Their goal was to be self-sufficient. However, in the 70s and 80s, many firms realised they couldn’t really compete globally due to the lack of flexibility resulting from a very complex management structure. To overcome this problem and increase their flexibility, companies decided to focus more on their core business and select areas of activity and processes that could be dealt with by third parties, in other words – outsourced.

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Offshoring

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What followed was the progressive task specialization, the increasing need of professional IT knowledge, scarcity of staff, growing labour costs, massive IT-migration projects (Y2K bug) and the Euro project in Europe around the year 2000. These phenomena resulted in the necessity to look for both capacity and money-saving opportunities in remote locations, such as Asia. The phenomenon got a name – offshoring.

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Ashok Deo Bardan and Cynthia Kroll, researchers from the University of Berkeley, conducted research on the phenomenon. They explain that: “The software sector was the first service sector to transfer significant activity to foreign locations, leading to the creation of a critical mass of expertise and resources in concentrated locales, such as the city of Bangalore in India. The rapid dissemination of the Internet, the transactional networks set up by immigrants in the US, and the liberalization of emerging market economies created the conditions for a major burst of outsourcing in the 1990s.”

More and more companies based in the United States, as well as in the UK, started to outsource IT work to India. There were several reasons for this. Educated Indians speak good English, so the probability of communication problems as regards language was limited. Also, there were a large number of talented and well-educated specialists there, having enough expertise to take up challenges and solve complex problems.

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Why offshore? The major reasons and pros

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The most common reason companies decide to delegate part of its business processes to third parties in remote parts of the world is to decrease the cost of labour. For a Western company, to hire a team of specialists based in India can mean considerable savings, and the cost of labour in the developing countries is significantly lower than in the West.

Another reason so many Western companies choose external resources to deal with some of their processes is the fact this lets them conduct large-scale projects they would not be able to do on their own. Also, this gives them access to a global knowledge base. They can take advantage of skills and expertise unavailable in the country they operate in.

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Offshoring is not for everybody

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Despite these undisputed pros, there are also cons that must be considered before you decide to start cooperating with a team of skilled IT experts from a remote Asian city. The most frequently mentioned disadvantage is the geographical distance. This may be a serious obstacle when it comes to travelling to meetings if certain issues cannot be discussed over the phone or via online communication tools.

Another factor is the time difference. When you and your offshoring partner operate in very distant time zones, it makes it tough or even impossible to communicate and cooperate in real time.

Lack of context can also hinder offshore cooperation. The service provider, not being part of the structure of the organisation and operation in a different business environment, doesn’t know its processes and procedures.

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Another potential obstacle might be legal matters, which has become even more applicable after the introduction of GDPR.

Does this mean it’s better to abandon the idea of offshoring all together? Not at all but it’s good to be aware of the fact such a cooperation model will not always prove successful for every company and in every situation.

The real problem behind the difficulties in offshore cooperation is often the fact that there is lack of mutual understanding between business partners. Often, the requirements are unclear to the offshore team and the organisation that hires the team doesn’t realize they need to invest in developing a deeper relationship with the other party and provide them with the right context. But the most common problem is that many outsourcing companies are simply not ready for an offshore model of cooperation.

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Is your company ready?

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Starting cooperation with a remote partner demands some preparation and the question is whether or not your organisation can handle it. The readiness can roughly be divided into four areas:

  • Readiness for change: Do you have a sufficient business case? Can you count on the full support of your organisation for the outsourcing initiative? Do they all have similar realistic expectations?
  • Technological readiness: How well do your systems support distributed working? Do you have a well defined technological architecture?
  • Organizational readiness: Will your team be ready to manage a remote provider? How specific can you specify your needs?
  • Training readiness: Will you be able to train your own team’s demand management skills and can you instruct your partners about your needs and demands?

For offshoring, you need to be ready as an organization, if not, nearshoring might be an option. Several potential risks of offshoring can better be managed in a nearshore situation.

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When is nearshoring a better option?

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The main factor that differentiates nearshoring from offshoring is that selected business activities and processes are delegated to nearby, often neighbouring countries. The benefits of that solution are obvious. The teams are not that far away from one another, usually it’s the same continent so they share the same time zone. What’s more, they have the same cultural background, so misunderstandings resulting from cultural differences are not an issue. It’s possible to travel quickly to arrange team meetings.

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Nearshoring is a better option in a situation when a company is still exploring what it needs, if there is still a lot of conceptual work or if the project consists of many iterations and requires active collaboration of both parties. Also, consider those issues related to the understanding of context, cultural background, geographical distance, time difference, legal limitations. Cooperation with a nearshore partner can significantly reduce these risks, but even still, you as an organization will need to have a basic readiness and willingness to outsource.

The type of project might be a reason as well. A large-scale project in general better suits the offshore model. But prototyping a solution which demands a lot of interaction with the team might be better done with a nearshore partner.

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Why Aspire needed a nearshoring provider in Europe?

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Recently, Goyello has become a part of Aspire Systems, a global company providing technological services, based in Chennai, India. With the merger, Aspire Systems has expanded its portfolio of IT consulting, software development, solution implementation and maintenance & support in the nearshoring model for customers in Europe and the US. Why did a company from India decide to find a nearshoring provider in Europe?

For different reasons, clients prefer an on- or nearshore provider instead of an offshore one. In today’s world, to remain competitive, this means that IT-providers increasingly will have to be able to offer all of these different approaches to best support their customers. To have better access to the European market, Aspire felt the need to have their own base in Europe.

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Why Goyello needed a partner like Aspire

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For Goyello the nearshore model worked well during our near 12-year history. Increasingly, clients and (potential) clients have started to demand a more scalable solutions Goyello couldn’t offer. Now, as part of Aspire, such solutions are in place and it will be easier to satisfy clients’ needs. Thanks to the acquisition, we will be able to bring on-, near- and offshore capabilities to the SME and corporate market. Before this, there were projects we would not have been able to handle due to a lack of available resources.

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Are you outsourcing your services to a third party? Have you got any experience offshoring or nearshoring your company’s processes? Share your thoughts in the comment section below.

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Peter Horsten

VP Software Development Europe for Aspire Systems. Sociologist and electrotechnical engineer, a great combination that stimulates him to look for the best working software solutions for clients. Passionate about converting great ideas into new solutions. Married and a proud father of 3 great sons. Training for and participating in triathlons/runs to stay fit.