The software industry has made a significant impact in the world in the past decade or two. The same developments have also changed how the industry operates. Similarly, running a successful IT business involves making a lot of decisions. Every decision made, right from the choice of coffee to hiring your top executives, has a massive impact on your business. One such decision is choosing between offshore vs nearshore outsourcing.
Outsourcing is no longer mainstream but rather a necessity in today’s world. In 2019, the worldwide outsourcing market was worth $92.5 billion. Outsourcing is a business practice in which services or job functions are farmed out to a third party.
While outsourcing was a relatively new concept in the early 2000s, the trends in these past two decades have shown that it’s no longer a question of whether or not you should outsource, but rather how far should you go. Should you outsource to your neighbors or go venture out into the world?
What is Offshore Outsourcing?
In simpler words, offshore outsourcing is the process of relocating your business or specific parts of your business to a different location than your origin country.
Why do companies outsource? The top reason for outsourcing (59%) is to save money and cut costs. This is closely followed by a focus on core business functions (57%) and solving business-related capacity issues takes third place with 47%. In the modern market, India and the Philippines are great examples of offshore outsourcing.
Let’s take a look at India as an example. India remains the leading country to outsource as per A. T. Kearney Global Services Location Index of 2019. Similarly, Revenue from the Indian IT industry has grown tenfold in the last decade from $4.8 billion in 1998 to $47.8 billion in 2007, according to the National Association of Software and Service Companies’ (NASSCOM’s) Strategic Review 2007.
Pros of Offshore Recruitment
- Cost Saving
30% of US IT companies that have tried outsourcing claimed that it helped them cut costs. A popular yet unconventional example of this is WhatsApp, the tech communication giant. Did you know that they outsourced most of their software requirements to app developers in Russia?
Not only did it keep their costs down but also allowed their core team in California to focus on other tasks.
- Round the Clock Services
Let’s take the example of a software company that is based out of California that has outsourced some aspects of their business to India. The twelve-hour time difference gives rise to a unique opportunity.
Thanks to offshore outsourcing, companies can make use of the time difference to run round the clock operations. An engineer from California can end their day by passing on tasks to the outsourced development team based in India.
By doing this, companies can ensure their operations are running smoothly round the clock that is the software-industry equivalent of a relay race.
- Access to Global Talent Pool
Even as technology made rapid advancements in the late ’90s, the software industry was still pretty localized. However, outsourcing changed that and how. Why limit yourself geographically when you can tap into the talent pool all over the world?
Take India for instance, it is now the global outsourcing destination across the globe with a 55% market share.
Cons of Offshore Recruitment
While there are many pros to offshore recruitment, it does come with its own set of cons.
- Lack of Control
One of the biggest challenges that companies face while outsourcing is the lack of control that they have. You can’t really control everything when you’re on a different continent.
This is where an intermediary like TeemGenie can come in handy. If you’re outsourcing offshore, you want to be able to face the logistical challenges that come with it. Right from hiring your team to daily operations, and having a reliable source on the ground can make a lot of difference.
- Cultural Differences
If you’re outsourcing to a country that’s across the globe, as opposed to a neighbor country (more on that later), there’s bound to be differences. The reality of the situation is that cultural nuances play a huge role in corporate culture as well.
For instance, India’s corporate culture is more hierarchical whereas America’s is flatter. Before you begin your outsourcing operations, you need to take the culture into perspective and decide accordingly.
What is Nearshore Outsourcing?
The next aspect of Offshore vs Nearshore outsourcing is ‘Nearshore Outsourcing.’
Introduced in 1997, the term ‘nearshore’ is as straightforward as it can get. It refers to outsourcing business processes to a country that’s near or adjacent to the primary market of the business.
For instance, if your business is based in the US, popular nearshore options for you would be Mexico and Canada.
Pros of Nearshore Recruitment
- Synchronous Communication
One of the biggest advantages of nearshore outsourcing is the shared time zones. A company based in NYC will have a shorter time difference (of just one hour) than California which has a three-hour time difference.
Once you factor that in with the reduced costs, the one hour time difference is advantageous and doesn’t affect daily operations.
- On-Site Visits
As we’ve talked about earlier, it’s important to have some support on the ground. Having nearshore operations makes it easier for the head office to synchronize their operations. It’s easier for an executive to fly from the USA to Mexico than it is to fly to India.
This gives companies an opportunity to stay updated regularly with their operations abroad without having to compromise on company standards.
Cons of Nearshore Recruitment
- Lack of Round the Clock Operations
If you’re a company that wants a system that’s online 24 hours a day, nearshore outsourcing might not be the best option for you. Since you’re outsourcing to neighbouring countries, you do not get the flexibility that comes with different time zones.
However, if you want a more controlled operation, this drawback won’t affect you much.
- Offshore is Still Cheaper
As we’ve established earlier, cost-saving is one of the biggest reasons why companies outsource their operations. If that is your primary goal as well, nearshore outsourcing, although relatively cheaper than onshore recruitment, might not be the most efficient.
Due to the proximity of the operations, nearshore outsourcing is more expensive than offshore outsourcing. There are many factors like the abundance of labour, average income, etc. that come into play while deciding the cost.
- Restricted Talent Pool
When you’re considering nearshore outsourcing, your focus will be on neighbouring countries, which usually means 2-3 options. While this may seem like a lot, you’re still going to be recruiting from a limited latent pool.
One of the biggest reasons is the cultural similarities between these countries, which restrict you from exploring more opportunities in terms of talent and affects the entire outsourcing recruitment process.
Offshore vs Nearshore: Which One is Right For You?
“The real power of outsourcing going forward is going to be that it increases an organization’s core capacity for change and growth.
The business challenges over the next decade are going to be very different than anything we’ve seen so far and the companies that weave a powerful network of global partners through outsourcing will be the winners.” – Michael Corbett, Chairman of the IAOP
In the end, the choice between offshore vs nearshore recruitment comes down to your needs.
As we’ve seen above both of these outsourcing options come with their own sets of pros and cons.
When it comes to outsourcing recruitment, you should make the choice based on the talent and your requirements. If you’re looking to outsource customer support, someone closer home might be better equipped to understand the culture. If you’re looking to outsource dev, skilled talent is your qualifier. India could be a great choice. After all, it’s an engineering talent hub in the modern world that produces 1.5 million engineers every year.
However, hiring an offshore development team comes with its own challenges like recruitment, daily operations and managing the legal as well as financial aspects. TeemGenie helps with these operational aspects, right from outreach to recruitment and management while you can focus on building a product that changes the world.
