More companies are turning to “nearshoring” as they come under pressure from factors arising from politics and the changing cost-benefit dynamics of labor(the cost of labor in foreign countries is rising steadily). Software engineering outsourcing often provides the best ROI for clients in the United States, although this factor is highly dependent upon the outsourcer’s country. While offshore outsourcing has historically provided the best ROI in software development, the narrowing talent gap between offshore and nearshore countries often makes near-shoring a better choice. Near-shoring works just like offshoring except that your business pairs with workers in similar time zones, which makes communication much more of a breeze. Even onsite visits can happen faster and more frequently. Plus, compared to onshore outsourcing, nearshore still offers cost savings.
In the recent Sourcing Decisions 2017 conference held recently in Toronto nearshore outsourcing enthusiasm was clearly reflected. The obvious fact from the conference is that Canadian outsourcing sector today is significantly different from what it was ten years ago.
There are some significant cost issues that differs nearshoring from offshoring which are usually hidden and are not considered while making a decision.
Cost of Time Zone:
Nearshore advantage begins with the Business hours. Time overlap is the main factor between a successful outsourcing project and a very costly failure. Being closer to the client country leads to more effective interaction at a lower cost, which in turn leads to greater productivity. Time zone proximity erases the need to work extra hours – which was commonly seen in Offshoring. This means the overall or loaded hourly rate with near-shoring is lower and thus lowers overall cost as well. When outsourcing, it is imperative to have high-quality communication between the distant-team and your business. The further away your software development team is from your business, the greater effect that time zones have on the opportunities you have will have to communicate
The Cost of Distance:
The distance between you and the software development team can lead to unexpected increases in the cost of management. Two major factors that affect the costs of management is distance traveled and quality of communication. For C-level executive and directors, the travel time can be avoided easily to manage other priorities.
Language and Cultural differences are expensive:
Culture goes side-by-side with language. Sharing cultural fabric can go a long way in smoothing communication and ensuring that everyone is on the same page regarding: timelines, expectations, workflows, collaboration structures, and even important subtleties of the software, such as aesthetics and user flows.
This difficulty in communication can decrease the efficiency of employees and increase costs to the project, because more communication between the client and the outsourcing party is required. This can also increase risks in such a way, that projects have known to have failed merely on the difference in culture
Canada is considered nearshore locations since they are all pretty close in distance (i.e., can be reached with a same-day flight) and between zero and two time zones away. Canada has long maintained a stable political and social environment. Additionally, the government is also encouraging skilled migrants, so it offers U.S. companies an alternative when they run into H1B-visa issues concerning current foreign workers. English is widely spoken there, and its culture and business practices are very similar to those in the U.S.
Total Cost of Engagement, or TCE, is an approach that evaluates the total expenditures of offshore engagements, bringing to light the cost competitiveness of a mature nearshore model, even when compared to highly cost efficient offshore models. Although nearshore rates tend to be little higher, the overall cost of nearshore engagements is equivalent or less than offshore, because of the efficiency gains by working in close proximity to the US.
If you would like to discuss what nearshore development could mean for your business, please contact me here. I am fortunate to talk with some of the North America’s leading brand regarding near-shoring of software development, customer service, technical support operations.