Every IT or SaaS business has its scaling needs, demands and particularities. We are pleased to guide you through the ups and downs of nearshoring and offshoring. Discover which of these two methods suits you best!
Offshoring is the term used to indicate the dislocation of production organization in different countries. It not only enables businesses to buy goods and services in not so usual places, but it also allows for the relocation of your production and managerial processes to be placed in areas that are far more suitable or cheaper. This is the Key to Offshoring.
When talking about Offshoring IT or Technology services - which is one of the most common types of offshoring - this is the decentralization of a company that sells software but hires another company to do it.
Searching for the ideal country to do your Offshoring starts by establishing rules that qualify the different workplace options. Here are some examples:
- If its implementation requires higher levels of low-cost workforce, usually China, India or Philippines countries are the best options to establish your offshore landing country.
- If cheap software is needed to finish the job, countries with the lowest price will be preferred (again, China, India or Philippines are a top choice). Take into account that you might risk certain quality standards compared to outsourcing to other countries.
- As for services, on the other hand, the main cost is represented by staff - countries where the required language is spoken, and worker’s salary is reduced are preferable.
In addition to the material benefits, there are also advantages linked to political and tax-related incentives, such as policies aimed at the exploitation of some regions rather than others. In this case, there would be a regional relocation.
What are the main advantages of Offshoring?
A great advantage of Offshoring is its significant lower cost of labor. Indeed, in countries where the enterprise is often relocated, low costs are due to fewer regulations, different working conditions and a great deal of available workforce.
Difference in time zones allow companies to relocate its production ensuring maximum work efficiency, 24 hours a day. The gap between different time-zones helps companies be focus entirelyon real-time customer service monitoring.
What are its disadvantages?
Even natural disasters could affect normal production processes for outsourcing companies because these countries usually do not have the means to fight these occurrences.
Communication and cultural differences might delay tasks and cause interference within your current efficiency. These problems could pose danger to critical information essential to competitiveness and the successful outcome of the processes.
Nearshore outsourcing, or simply “nearshoring”, is a practice applied to business outsourcing, which has been especially tailored in the past to fishing industries - so this is an old practice. Lately, however, nearshore outsourcing has become less relevant to the terms “shore” and “water”, and it now most commonly represents the outsourcing of job opportunities in neighboring countries, such as those in South America.
In the Software Development and IT systems maintenance sectors, nearshoring has been widely distributed over the last few years, especially in the American continent. Decentralization of IT operations to neighboring countries has brought huge benefits, mainly due to the easiness of managing teams that share the same education, principles, language, timezone, among other cultural aspects. IT costs became much lower, maintaining its high quality standards, and fast collaboration with other IT providers that supported its placement. It was easier to have personal meetings with suppliers that are crucial in key moments of the project.
For several years, many companies have shifted their production to Eastern Europe and Asia, particularly China, to take advantage of the low cost, and low personnel costs. In China, as in several low-cost labor countries, wages are steadily growing and this has greatly reduced the cost-benefit ratio. Consequently, many companies tend to decentralize production sites in neighboring countries, relying again on local suppliers, with the aim of reducing risks and optimizing the value creation chain.
Businesses in the American continent, particularly Latin America, benefit from having a very similar time zone to the main office country, allowing them to take a more active role than if salesmen would be far distant. This is of great importance when working with an Agile Methodology, that promotes continuous collaboration in order to achieve expected results.
What are nearshore outsourcing benefits?
Possibility to hire employees who will work for lower salaries than workers in their main business country - without sacrificing quality.
These neighboring employees are likely to be highly skilled, comparing to workers from the main office.
The proximity of the company from which work is outsourced is travel efficient. If company employees in the main country need to travel frequently to the outsourced locations, these savings can be substantial.
Sharing time zones avoids communication problems that could potentially cause a lot of time waste.
Any cultural differences in nearshoring tend to diminish - facilitating communications and face-to-face meetings.
What are its disadvantages?
There might be a slight increase in labor costs caused by the similar wage gap in neighboring countries. In this case, the cost of labor would be greater than offshoring.
Flexibility (considered an advantage) could also be a problem because delocalization limits the potential locations a company can turn to when scouting.
Nearshoring in U.S. neighboring countries
Companies don’t always save money via nearshore outsourcing. For example, American companies with outsourcing jobs in Canada pay around the same wages as they would for American workers. The benefits in this case may be primarily that there is an open trade between the two countries - creating Canada's demand for American products and vice versa.
More often than not, companies employing this method tend to do so with countries where the average wage is lower.
A recent top choice for US companies to nearshore IT and Technology services is Argentina [http://simplex.software]. Not only is this South American country experiencing a great political shift towards a more open market for US companies to invest in, but it also has the highest qualified workforce in the continent - especially when talking about programmers and highly specialized labor.
Conclusion: what fits best my business?
When an enterprise company has to choose between offshoring and nearshoring, it is often important to focus on the fact that offshoring offers greater cost benefits, leading to greater risks of nearshoring.
But if companies believe that they need a cheaper solution than US workforce, but that they shouldn’t risk quality over price, then nearshoring is definitely the best choice.
Companies like Simplex offer benefits through nearshoring by implementing workflows with simplicity and great functionality. Simplex works to manage software development needs and establishing collaboration in order to help their clients to achieve the expected innovation results.
If you desire to learn more about the nearshoring benefits that your company can quickly implement, visit the Simplex site and request a call with our team!