Nearshore May Be the Best Option for Overall Savings

The move to outsource or off-shore software development has been growing since the 1990’s, but in the last five years off-shoring has exploded as U.S. companies have migrated a majority of their programming efforts to Asian companies (primarily) in an effort to contain costs. The vast majority of Fortune 1000 companies in the United States now use off-shore help for software development, quality assurance, application support or helpdesk functions: In many cases, all of the above.

In the early days of off-shoring, getting any level of productivity was a challenge due to the time difference (10+ hours) and the distance, which made it difficult to have direct interpersonal visits. Extremely detailed requirements were required and the off-shore teams needed to have the ability to work in a vacuum in order to be productive. Tools like Skype, Webex and other video conferencing tools have eased the pain of communication somewhat, but the overlap in working hours is minimal between India and the U.S. and the challenges in verbal communication and cultural differences remain.

Nearshore was originally a term that Indian off-shore companies invented to describe the on-shore, off-site component of their offering. In an off-shore engagement, the off-shore partner typically provides 10-20% of the overall staff on-site at the client at prevailing on-site rates. Then the off-site developers (typically in India) provide the other 80% of the development to balance out the overall rate to the client. Clients wanted a "middle" component that was off-site, but in the same time zone, so Nearshore was born. Typically off-shore companies will establish the nearshore facility in the U.S. and charge less than the on-site rate, but much more than the off-shore rate. The client saves on rate, equipment and office space and still gets the all-day overlap with the nearshore team members.

So, many U.S. companies have embraced the three-tier model:

"On-site" to manage the off-site resources, allocate work, interface with the client, attend meetings, build requirements, etc.

"Nearshore" to provide a lower-cost, same-time-zone resources with lower turnover than off-shore, therefore providing some continuity, and then;

"Off-shore" the reason we did all this to begin with: The low-cost guys in a far-off land.

If this sounds like a fairly complicated structure, it is. If it seems like there could be a lot of inefficiencies along the way with a system like this, right again. Most IT executives don’t really think they’re saving money with this model and know that the development process is much slower than it was when it was all done in-house, and that was before they went AGILE.

A popular alternative to this model has been to remove the on-site and off-shore components and focus on Nearshore in Latin America. A more agile development model doesn’t really have time for all the tiers of hierarchy and long development timelines. Latin America teams in Mexico, Costa Rica and Argentina have a much easier-to-understand dialect and can work on the same schedule as their U.S. counterparts. The hourly rate is higher than India, but all the overhead needed for "off-shore" goes away leaving much more opportunity to be agile. Inefficiencies go away too as the ramp-up time is much faster and progress can be tracked daily, if not hourly with nearshore consulting firms.

One such Nearshore firm is Prosoft Nearshore; located in Costa Rica, but owned by an American. "We started the nearshore component of our offering two and a half years ago and the results have been outstanding. Nearly all of our clients tried the "Indian off-shore" model and it didn’t work for them. Latin American Nearshore gives them 100% of the productivity they get with on-site contractors at a dramatic savings and no need to change their processes," said Prosoft Nearshore President, David Easterling

Costa Rica has been a popular choice for nearshore development because of the relative proximity to the U.S., stability of the government, safety and education levels. Mexico is also popular, but not nearly as safe these days. Argentina is further away with less spoken English, but also has a high level of technical talent.

Indian off-shore is here to stay and the savings are possible, depending on the size of the organization, the level of complexity of the work and the amount of pain the organization can endure while trying to make it work. Latin American Nearshore has become a popular alternative and worth exploring because the savings are immediate (and sustainable) and the shock to the organization is negligible.