Co-founder and CEO of Ideamotive. Entrepreneur, mentor and startup advisor.
Offshoring? Nearshoring? What are the pros and cons and how to choose the best option?
IT market was never an easy one – there is a limited number of specialists available and skyrocketing need for their knowledge. The problem is widely seen in Europe where, according to the European Commission, a shortage of up to 900 000 skilled ICT workers can be seen in 2020.
World Economic Forum also highlights the problem, as the need for skilled coders and software engineers is booming in the times of the fourth industrial revolution. WEF experts note that 54% of employees will need reskilling by 2022 both to stay on the market and to deliver the workforce needed.
The natural consequence of this situation is the rising cost of ICT workers, especially good ones. Software engineers’ salaries are rising even by 25% yearly and DevOps even more. So many businesses are clinched between the need for skills and limited resources. That’s why it is getting more common to outsource IT processes, both simple and more sophisticated ones, such as software development outsourcing.
IT Outsourcing – What It Is About?
In the basics of outsourcing, there is an idea of taking a business process out of the company and transferring it outside, to a specialized service provider. It is common to outsource accounting and legal operations and companies specialized in these processes get market esteem. KPMG or PwC are among the best examples of international giants providing complex outsourcing services.
According to Global Industry Analytics report, the global outsourcing market will reach around $220 billion by 2020. The estimation is not including cloud-based processes, that are basically a top-tech form of outsourcing particular needs, be that delivering an internal tool or providing computing power.
Software development outsourcing itself is usually divided into offshoring and nearshoring.
What Is Offshoring?
Offshoring is basically a geographical term, imposing that the job to do is being transferred… well… somewhere far away. It is usually used in the context of transferring the processes from a developed economy into an emerging one. Offshoring can include both simple tasks requiring an unskilled workforce and sophisticated tasks that are to be fulfilled by super-skilled teams of experts. That’s basically not in the core of the idea.
Offshoring usually comes with a great deal of savings coming from economical differences. And that’s a natural thing – offshore workers provide good quality for the money they consider fair. And that’s usually less than the local workforce considers as such.
What Is Nearshoring?
Nearshoring is the same concept as offshoring, but the geography changes. In this situation, the company is transferring business processes to the partner in a nearby (or at least close) country. So a single company can be both offshore and nearshore partner, depending on the client it works with.
What Is Onshoring?
Onshoring is the last term when considering the relations between geography and outsourcing. Onshoring transfers the processes to the outsourcing company in the same country, but with all the advantages of IT outsourcing services.
A single company can be onshore, nearshore and offshore services provider, depending on the geographical localization of the client. So Ideamotive, a Polish software house, is:
IT onshore partner for a Polish e-commerce market leader
IT nearshore partner for a Germany-based retail company
IT offshore partner for US-based tech giant
Offshoring, Nearshoring – Pros And Cons
Considering the fact that all these -shorings refer only to the geographical location of the partner, and in the age of the Internet it matters only for manufacturing business, most of the pros and cons are common. But not all of them!
Outsourced service providers are solely focused on their business – a service they provide. On the other hand, most companies earn their money somewhere else – in manufacturing, sales or providing another type of service. So any supporting role, be that accounting, marketing or IT, is always a cost and is provided by people who are as good as they are – a team is limited to several individuals usually.
A service provider houses dozens or hundreds of experts who face numerous challenges working for multiple clients. A chance that the in-house team will be better than outsourced one is limited (to be honest – that’s impossible except narrow cases like IT security in banks). Moreover, IT outsourcing providers are looking for superstars in the field – offering their services makes difference and working for multiple partners justifies a high paycheck. So it is not a surprise, that in software houses like Ideamotive there are top-notch UX/UI designers, web developers, and mobile developers, that are unseen in in-house teams.
A company with multiple partners can feel routine over time and start seeing all the clients as the same. That’s a huge challenge, especially considering the fact that every company is different and even a standard service needs to be adjusted to the client.
But that’s a disadvantage of a particular IT outsourcing company, not of IT outsourcing itself. Yet some companies just don’t feel comfortable with that.
That can be both an advantage and a disadvantage, depending on the situation. When it comes to IT nearshoring, the companies are usually in one timezone or the difference is no larger than an hour. Considering that, it is easy to arrange a phone call or a video-conference to discuss any issue. with neighboring countries, it is also easy to meet, both on the neutral ground of conferencing center or in the headquarters of any of the partners.
That’s more a challenge when it comes to offshoring. Although it is common for project managers to respond for a call in the middle of their night, reaching technical leaders may be troublesome. Due to the timezones, arranging the ad-hoc call is nearly impossible.
On the other hand, timezones come with a bunch of unexpected advantages. With an IT offshore partner, it is common to ask for something in the evening and gets it in the morning – their day just came by. For example, if you are based in the US and your IT team is in Europe you know that when you come to work they have been already working almost all day!
Language And Cultural Barrier
With English being lingua franca odd IT the language barrier seems to perish. But not for all. Apart from the language itself, there are even broader gaps regarding the style of working, sticking to the time schedule or the way of communication.
The best example is the punctuality in Northern Europe, while in the south people are more relaxed. Those cultural differences are seen when working with both offshore and nearshore company. But the nearshore one usually consists of people with a known mindset – Poles work with flexibility that always stuns their German partners, but rarely surprises. Working with a partner from far away is always a riddle.
Considering all the pros and cons, usually the IT nearshoring is the best option available. Knowing the partner and reaching it within the same timezone is a good option when the cooperation needs to be tight – and that’s basically the point of IT outsourcing. Moreover, despite the short geographical distance, economical differences can be significant.
That’s why Eastern Europe (especially Poland) rises as the key IT outsourcing destination. According to the Business Insider Poland has third-best coders in the world, dwarfing Japanese ones and leaving the US or UK ones far behind.
Robert is a co-founder and CEO of Ideamotive. Entrepreneur, who with passion spreads digital revolution all around the internet. Mentor and advisor at startup accelerators. Loves to learn and discover new business models.