Still Outsourcing Offshore and Expecting Different Results? Insanity

Stop the madness that has become associated with offshore outsourcing. Traditional software development outsourcing, also known as offshoring, involves the use of outsourcers that are located on a different continent from their clients. For clients in the United States, this typically means outsourcers in India, Eastern Europe and China. However, an alternative form of outsourcing known as nearshoring involves the use of outsourcers on the same continent, often in a neighboring country.

Nearshore software development is especially helpful for companies in technical areas that typically struggle to obtain personnel who can develop their products, need an extension of their current team, require quality and testing services and many other reasons. The return on investment (ROI) of outsourcing often increases as the physical distance between client and provider decreases, primarily due to a greater similarity in time zones, language and culture. However, many other factors can determine the suitability of nearshoring with a particular country. For example, clients in the U.S. often find that nearshoring in Mexico provides a better ROI than in Canada due to its higher wages and other domestic issues.

Overview

Many businesses in the U.S. are improving their ROI by outsourcing their information technology (IT) requirements closer to home. Other countries in North America have an untapped potential for IT due to the rapid increase in innovation hubs in safe, accessible locations. For example, ProMexico reports that more than 90,000 students graduate in Mexico with engineering and technology degrees. The value of Mexico’s outsourced IT services is rapidly approaching $15 billion per year with no signs of slowing down. Furthermore, the North American Free Trade Agreement (NAFTA) allows IT services to flow freely between the U.S. and its neighboring countries.

The trend towards software engineering outsourcing has dramatically increased over the last 15 years as businesses attempt to improve their ROI on IT. These costs are a major expense in many industrial sectors, so they also represent a significant opportunity for cost savings. Larger organizations are still more likely to outsource IT services overseas, although this practice is declining due to the challenges involved in calling a provider on the other side of the world.

Offshoring is creating a struggle in maintaining customer service for the U.S. market as the demand for IT services increases. This trend has led to many businesses feeling dissatisfied with the level of service provided by offshoring, thus creating opportunities for nearshoring solutions. These solutions require a dramatically different approach to deliver the ROI that businesses are now seeking.

Mexico

The geographical proximity between Mexico and the U.S. provides many advantages for nearshoring. Direct flights between the major cities in these two countries require no more than a few hours, allowing for a greater frequency of face-to-face meetings. Some of these partnerships involve longer on-site visits, which create greater trust and camaraderie between clients and providers.

The U.S. and Mexico also have strong cultural ties in addition to their close proximity. Software developers in Mexico typically have a close familiarity with American culture and work ethics. Providers in Mexico are also in the same time zones as U.S. clients, allowing for a greater degree of collaboration in real time. Furthermore, the management teams of some Mexican service providers are based in U.S. cities, which provide clients with greater security in contracts.

Protection

Wired Magazine reports that Mexico currently has at least 44 free-trade agreements, which is more than any other country. These economic changes are rooted in American foreign policy and grew through a combination of risk-taking and determination. Mexico’s free trade policies are encouraging startups on a tight budget to look at outsourcing providers in Mexico, especially Guadalajara. Additional tech-friendly cities in Mexico include Hermosillo, Jalisco and Monterrey. These locations allow software developers to live and work in conditions similar to those of their America-based counterparts.

However, trade agreements aren’t the sole reason for Mexico’s value in software engineering outsourcing. The Mexican government has also enacted various legislation that will have far-reaching effects in labor and taxation that favors foreign trade. Furthermore, the National Entrepreneur’s Institute (INADEM) is leading efforts to bring business accelerators and incubators into Mexico, resulting in the investment of hundreds of millions of dollars in entrepreneurial activity.

There are minimal travel restrictions between the U.S., Mexico and Canada, especially for business professionals. Software developers from Mexico, therefore, have relatively few hurdles to clear when visiting U.S. clients for prolonged periods. Outsourcing clients are provided with greater protection of intellectual property (IP) rights and other forms of sensitive proprietary information.

Comparisons

Outsourcing customers in the U.S. have many options when seeking nearshore alternatives to traditional offshore outsourcers. CIO Magazine reports that ThinkSolutions, an outsourcing consultancy, ranks Mexico as the best choice of Latin American outsourcing countries. ThinkSolutions partner Tony Mataya says, “It was no surprise to see Mexico at the top of the list.” He adds that “the cultural influence that comes from sharing a border with a country simplifies business relations.” Additional reasons for ranking Mexico at the top of this list include its 2,000 IT businesses and a labor pool of 550,000 IT professionals that’s growing rapidly.

ThinkSolutions ranked Chile as the second most attractive outsourcing country in Latin America for many reasons. Its outsourcing industry has strong support from both the government and private sector. Chile is also one of the most politically stable countries in Latin America, according to the Corruptions Perceptions Index (CPI). This measure of political stability is produced by Transparency International, an agency that monitors corruption in international development. The primary disadvantage of using outsourcers in Chile is its distance, which is at least a 10-hour flight from the U.S.

Costa Rica appears third on the ThinkSolutions list, primarily for its proficiency in English and widespread use of Western business practices. Research also shows that Costa Rica has well-trained software developers. However, its relatively small labor pool cost Costa Rica some points.

Brazil ranked fifth on the list, an unexpectedly poor showing given its reputation as a source of IT services and the size of its labor pool. ThinkSolutions consultant Kate Shearer states, “Brazil doesn’t offer what Chile or Costa Rica does in terms of cost, language skills or work force availability.” She adds that the economic and political stability of Chile and Costa Rica give them a higher ranking, despite the significantly larger size of Brazil’s labor pool.

However, Brazil’s earlier success in IT outsourcing is also causing the demand for labor to outstrip the available supply, especially in IT. The available talent will therefore be more expensive, especially in the larger cities. The official language of Brazil is Portuguese, so it has relatively fewer workers who are proficient in English and Spanish. The U.S. also has less influence on its culture, according to Shearer.

We at Tiempo Development combine nearshore software development techniques with agile methodologies to deliver the business value our customers expect. We also offer bicultural and bilingual software engineers with a deep of expertise in developing innovative software solutions. Tiempo team members routinely collaborate in an open environment to accommodate changes in user requirements. Contact us today to find out more about our approach to developing quality software.

About Tiempo Development

At Tiempo, we are making the business of software development easier and more affordable with a unique combination of a nearshore business model, agile methodology, and advanced talent management. Our Development teams engineer powerful technologies that align with the goals and strategies of our customers for both their internal and public-facing development initiatives. Tiempo’s proprietary agile product-lifecycle management framework called Tiempo Quality System or TQS, is composed of principals and best practices that ensure productive client and team interactions. The result is efficient software development that enables Tiempo to support companies in launching software releases sooner – without draining important resources.

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