5 Things To Understand about Outsourcing History

With Time-to-Market becoming the new Key Performance Indicator, the Tech industry is more competitive than ever and CIOs are looking for more alternatives beyond their borders. Outsourcing software development has dramatically changed along with user demands and fast-moving technologies. The history of outsourcing has kept pace with the changes in our technology with it comes a new model of nearshore sourcing.

Need a quick overview on Outsourcing first? We’ve got you covered.

Outsourcing happens when an individual or business performs tasks or provides services for another business, (projects and functions usually completed in-house). And even though outsourcing has been used by corporations and growing businesses in the United States and Canada for decades, it has just become synonymous with keeping pace with technology over the last ten years.

Outsourcing development talent has quickly become a best practice for North American businesses looking to reduce Time to Market and overhead by partnering on projects and functions. And more businesses today are using outsourcing to reduce costs and increase agility.

Is this surprising? Maybe. As consumers we’ve been aware of offshoring trends for years. It’s not strange or surprising to anyone that their German car may have actually been assembled in Mexico. We know that most of the clothing labels we purchase aren’t manufactured in the United States. But how many of us realize how much software development is happening outside of the U.S.?

The economy is going global and software development is on the rise all over the world, in places like Afghanistan, Malaysia, China, India, Kenya, Morocco and Costa Rica. You need to understand the history of outsourcing development talent to learn why more businesses are looking nearshore to outsource their development projects.

Here are the five things you need to know about the history (and future) of outsourcing:

1. It all started with ROI.

Outsourcing has been a business reality for decades and it all started for one reason, Return on Investment. The thriving and growingly competitive North American business markets have led more companies to look for ways to reduce overhead without impairing production. Any business looking at Offshore Development is looking to increase their ROI.

That’s because while the development talent is quickly growing abroad, the cost of living in these countries hasn’t risen anywhere close to American levels. And that’s not all, while educated talent is growing in countries like Mexico, the domestic job markets aren’t keeping up. This means there’s an abundant talent market available at a lower cost outside of the United States where it seems like there are sometimes more Development jobs open than there are local developers. Outsourcing can drastically reduce the cost of projects and the timeframe necessary to complete them.

Compare that to the Development talent in Mexico. Over the last five years, an average of 130,000 engineers and technicians graduate from Mexican universities and specialized high schools every year. This number has surpassed students graduating in the same areas in Canada, Germany, and even Brazil, which has almost double the population.

And while higher education is an increasing regularity in Mexico, the job market hasn’t changed – it remains stagnant. Engineers in Mexico increased from 1.1 million to just 1.3 million in recent years.

The talent is growing quickly abroad and it isn’t going unnoticed by North American business markets. According to a survey conducted by the consultancy firm Bain & Company, 82% of the largest businesses in North America, Europe and Asia have some kind of outsourcing agreement in place. When it comes to outsourcing in another country specifically, 51% of companies outsource to a totally separate organization in another country.

2. The workforce is changing.

According to Forbes, lean businesses and technology are leading the “workforce revolution”. With today’s technology, it is easier and more efficient to manage remote workers, distributed teams, and contractors. Most communications are done via email or Skype, GoToMeeting, slack, etc. and that is why more businesses are moving away from large and expensive offices to house their workers. The new working models let companies build more agile structures necessary for development of leading edge technologies and services.

In fact, it’s estimated that by 2020, more than 40% of the American workforce will be comprised of freelancers. If that sounds like a lot, it’s because it is. In fact, that’s over 60 million people working contract or freelance. And with the workforce quickly evolving and working remote becoming the norm, offshoring software development talent has become more compatible and as a result, more popular.

3. Outsourcing is now strategic.

Back in the nineteen nineties and early two thousands, U.S.-based businesses offshored lower level salary and responsibility roles to more cost-effective locations across the globe, but over the last decade, everything changed. Now more of these businesses are relying on outsourcing to support their more robust and strategic roles as well, especially those in Technology.

Adding entire Development teams or team members from outside of the country has become a norm and business best practice, especially following the emergence of the Start-Up economy. More businesses are looking reach the growing business talent beyond their borders.

4. Proximity is important.

The outsourcing of IT projects to India, China and Hong Kong was the norm for more than a decade, but over the last decade many of these companies are seeing the benefits of Nearshore IT outsourcing. The cost of labor in India isn’t as economical as it used to be which can be a pain point for CIOs and other executives in North America. Offshoring numbers have been quickly declining since 2005 while nearshore outsourcing has been trending upwards. Why?

More experts are talking about geographical proximity. Offshoring software development work can mean a lot of lag time (often, in excess of 12 hours) and less control over projects, deadlines and quality.

Distance and timing issues can lead to increasing communications difficulties. Even when increasing timeframes aren’t apparent, poor working conditions usually are. The working conditions that offshore development teams tolerate usually mean increased turnover, a lower quality of life, and a resulting impact to software quality and outcomes.

Nearshoring can also help companies avoid the heightened risks inherent to undeveloped legal and regulatory systems.

5. Everything has gone agile.

Heard of Agile Development before? Since its creation in 2000, Agile has quickly become the popular approach for most Development teams because of its ability to produce faster outcomes at a higher level of quality. Agile methodology was created in response to disadvantages of the traditional or “Waterfall” development method.

Agile Development increases agility by fast-tracking quality software and application development. The approach breaks up all the pieces of the development project or application into smaller functionalities called “stories.” All of the stories are organized on a central storyboard for a clear, big picture approach before the team executes the separate functionalities in order of priority.

While traditional software development models can take up to 12 months to implement and see a real ROI, Agile’s bite-sized deliverables leads to faster outcomes and quicker profits. More outsourcing development firms have moved away from the Waterfall development method for quicker results and a shorter Time to Market.

Tiempo is a nearshore development business that uses Agile. Our Tiempo Quality System can help your business reach previously unmatched levels of quality, velocity and scalability.

Our proprietary development process was built to help move our clients faster and farther ahead without depleting valuable resources. TQS includes best practices from enterprise, mid-market and cloud development in a single system that can be configured to a variety of Development projects.

About Tiempo Development

Tiempo’s nearshore business model has become hugely successful because we have been able to leverage the talent Mexico is fostering, making software development easier and more affordable. Our Mexico software development teams engineer powerful technologies that align with the goals and strategies of our customers for both their internal and public-facing development initiatives using our product lifecycle management framework called Tiempo Quality System or TQS. This proven combination of resources, process, technology knowledge, industry expertise, and strong leadership provides our customers with cost-effective solutions delivered quickly from a pool of highly successful Mexican STEM graduates and experienced engineers. Our technical focus includes Microsoft infrastructure and security such as .NET and MSSQL; Java, LAMP and mobile application development. Find out more about outsourcing software development by ;contacting Tiempo today.

Ready to talk?

Click here to schedule a meeting with our team to learn how we can partner with you to help you innovate faster.