Nearshoring Benefits & Disadvantages

Nearshore outsourcing is the process of delegating specific tasks—in this case, software development—to third-party companies in nearby countries to achieve strategic goals.

Outsourcing to a nearshore company offers many of the same benefits you’ll get from offshoring including cost-savings, access to hard-to-find skills, and the flexibility to scale up, down, or in a whole different direction.

Nearshoring builds on those advantages, enabling better collaboration and communication due its close proximity to the client–striking an attractive middle ground between the convenience and quality offered by a domestic development team and the affordability of using offshore developers.

That said, there’s a flip side to the advantages of nearshoring that companies should be aware of before engaging potential vendors. In this segment, we’ll explore nearshore outsourcing’s advantages and disadvantages to give you a better sense of what to look for in a prospective partner.

Nearshoring Benefits

Time Zone Compatibility

Same (or similar) time zones allow internal and external teams to collaborate throughout the workday, helping companies avoid the bottlenecks and delays that you’ll often encounter while working with teams based on the other side of the world.

The time zone compatibility of nearshoring offers clients the flexibility to quickly respond to new requirements, course-correct in near real-time, or incorporate user feedback as it comes in.

Beyond the day-to-day benefit of being able to hop on a call or work together on a project during normal hours, that close proximity also allows companies to reduce travel costs and avoid long flights that can make entire days disappear.

For US companies working with Mexico-based teams, it’s easy and cost-effective to hop on a short flight, meet with the team, and return home that evening.

Cultural Closeness

One of the biggest nearshoring benefits–at least if you’re partnering with a Mexico-based team–is the cultural closeness. The US and Mexico share many cultural similarities–from TV and movies to social norms and even work culture–making it easy to work together by enabling teams to bond and build trust.

Most Mexican developers speak English fluently, as the country’s university system requires students to learn the language and demonstrate a certain level of proficiency to earn their degree. These factors make nearshore uniquely suited to Agile development projects that require close, constant collaboration and a high level of engagement.

However, success hinges on creating an inclusive environment where external developers are integrated into the company culture.

Angel Almada

“Cultural parity is key in getting your internal and external teams to collaborate as a single unit. It’s very important for the customer to acknowledge and position outsourced developers as an extension of the in-house team.”– Angel Almada, Director of Solutions Engineering – Tiempo Development

One of our Software Engineer Leads, Paul Estrada, advises companies to “make sure all stakeholders are aware of all available communication channels and have access to those channels.”

He also recommends that companies set themselves up for effective collaboration by clearly defining the responsibilities of key roles and creating consistent processes that define workflows and effective communication between teams.

ROI

India’s costs might be $5 to $10 less per hour than in Mexico or Latin America, but the country’s 13% annual attrition rate, combined with the challenges of working on opposite schedules will have a negative impact on the bottom line.

Infrastructure Quality

One of the lesser-known nearshoring benefits is that outsourced teams typically have better infrastructure quality than you’ll find in other parts of the world.

Mexico and Latin America tend to have a more reliable communication infrastructure and stable internet connections, preventing delays caused by slow load times or unforeseen outages.

While infrastructure quality isn’t necessarily an issue for every offshore partnership, we’ve seen companies outsource projects to India or Eastern Europe only to run into problems due to crumbling, outdated infrastructure that wasn’t designed for how we work today.

Disadvantages of Nearshoring

Most of the risks or disadvantages of nearshoring have more to do with factors like poor planning or a failure to do proper due diligence than the business model itself.

That said, there are a few things you’ll want to keep in mind as you search for a solution provider.

Costs

The main disadvantage of nearshoring is that it’s typically more expensive than offshoring.
In most cases, nearshoring offers a higher return on investment and focuses on providing value to the client, rather than providing the lowest possible rates.

That said, there are certain situations where it makes sense to go with the lowest cost option.

For example, if you’re looking to outsource a project that requires minimal collaboration, you’re building a prototype, or you’re not operating under a tight deadline, offshoring might be a better choice for optimizing your resources.

Here, you’ll want to make sure you identify your needs and determine what level of involvement you’ll need from an outsourcing partner before engaging a potential vendor.

Resilience

According to the FM Global Resilience index, Mexico ranked 67th in global resilience across three categories: supply chain, economic, and risk quality. India ranks 58th; China ranks 68th; Romania 38th; and Bulgaria 44th.

The index aims to assess a country’s risk level and its ability to recover from natural disasters, cyberattacks, terrorism, and economic downturns.

While Mexico’s resiliency score could be better, the main point here is, you’ll want to make sure that you partner with a company that is financially stable and is prepared to weather any potential storms that could impact their business–and yours.

Confidentiality and Data Protections

While Mexico operates under the same IP guidance and regulations defined by the US legal system, IP theft and security threats are a risk any time you contract work out to a third-party provider.

Before engaging a potential vendor, you’ll need to make sure you consider what information you pass on to your nearshore partner–what data is essential to the project and what can you keep confidential?

What kinds of measures do you have in place for safeguarding sensitive information like your customer data, IP, and revenue-generating insights?

What to Know Before Working with a Nearshoring Company?

Now that we’ve gone over nearshore outsourcing’s advantages and disadvantages, let’s quickly go over a few things you should know before partnering with a nearshoring company, based on responses from our recent employee survey.

Effective Communication is Everything

One of the recurring themes among employees was the importance of integrating nearshore teams into the company culture.

Engagement and Release Manager Ivan Rodriguez says: “Both parties should know the exact status whenever a change occurs. If there’s a bug, the team should know… if there’s a change of scope, the team should know. Together the entire team should find a way to manage difficult times and get rapid turnarounds. ‘It is what it is” and the team together needs to solve it.”

HR Manager Erika Arellano says it’s important that you “have people at the office, as it makes it easier to follow up on action items. We’ve had cases where our client’s employees don’t answer the phone or the client fails to show up to a meeting to review outcomes.”

Company Culture Matters

One Tiempo engineer expresses you should: “Treat your external team just like your own employees, involve them in your company culture as much as possible. This helps create bonds between teams, while also keeping both groups informed and on the same page by providing context around tech requirements and drive improvements.”

Additionally, make an effort to share positive feedback, recognize achievements. You want external teams to feel valued and stay motivated.

Software Engineer, Jorge Millan advises companies to “treat everybody as equal, set ground rules that take differences into account–whether that’s culture, age, or approach to reasoning.”

He also recommends that companies “accept and embrace failure as a way to improve, and focus more on developers’ eagerness to learn than current knowledge. Yes, a great team has knowledgeable workers, but an excellent one is excited to improve and learn.”

Empower External Teams

While it’s understandable to be concerned about protecting IP and consumer data, at a certain point, you’ll need to make sure that you’re giving your outsourced team the insights and context they need to better understand your company and the goals you’re trying to achieve.

One of our Scrum Masters, Rodolfo Carmona says, “one of the factors that sometimes prevents US companies from getting the most out of their partnership is the limited ownership they are willing to give and the lack of confidence when it comes to granting external teams access to the tools and system permissions that help them do their jobs.”

Choose Teams that have Worked on Similar Projects

You’ll want to look for vendors with experience relevant to your target use case. While it might be tempting to start your search by looking for developers that use a particular programming language or technology, it’s better to zoom out and focus on finding someone that can help you achieve the desired outcome.

As you start the vendor selection process, you’ll want to find out if they’ve worked on similar projects, have experience in your industry, and what kind of results they’ve achieved.

Find out if you can look at their past work, interview previous clients, or if they have any case studies you can check out.

Realizing Nearshoring Benefits Hinges on Finding the Right Partner

Nearshoring benefits an organization in a variety of ways—it’s a cost-effective outsourcing strategy that allows for a level of collaboration that isn’t possible with offshore outsourcing.

Still, it’s important to make sure that you do your homework before jumping into a partnership with a nearshore provider.

Tiempo experts can help you leverage the advantages of nearshoring and achieve your biggest strategic goals. Contact us today to learn more.