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The global outsourcing market is massive. It generated $85.6 billion in 2018, according to Statista, and IT outsourcing companies were responsible for the lion's share of this amount, generating revenues of $62 billion.
Software development outsourcing is clearly big business. The size of the market also indicates that it works. After all, so many companies wouldn't be I outsourcing their IT if they didn't see results. Are those results as good as they could be, though?
Statista named India and China as the best two countries for outsourcing in 2017 based on cost efficiency, skill, availability of human resources, and the business environment. Clearly, there's a clear preference for offshoring because of the lower costs. Or so it seems.
If you only look at the direct costs, then offshore software development outsourcing certainly shines. So, if your only metric is how much work you received for the money you paid, then you're probably a die-hard advocate for offshore outsourcing.
However, in today's fast-paced economy, direct costs cannot be your only focus. Agile development and similar practices are now the norm because the faster you can bring your product to market, the more competitive you are.
Companies can no longer afford to spend months or years developing a complete solution. Consumers want results and they want them quickly, and the companies that deliver stay ahead of the game, like Google and Amazon.
When you opt for offshore IT outsourcing companies, you run the risk of project delays, defects, and more.
Nearshore software development outsourcing is a far better option because you get all the benefits of outsourcing without any of the drawbacks.
Having a team working on your projects while you are asleep may sound like an amazing dream.
You hold a meeting before you leave work, and everyone knows what they need to do. When you get to the office in the morning, the work has been done and is waiting for you. Sounds pretty great, and time zone differences have made it possible.
Reality, though, is rarely this seamless, and significant time zone differences can cause major problems.
What's more likely to happen is that you meet with the team during the one-hour overlap between the two time zones. Everything seems great. Everyone says they're clear on what needs to be done.
So, you go home, completely relaxed and confident your outsourcing company is doing the work.
You wake up the following morning, excited to see the results. Except, when you check your email, you find a message with a question. It's a pretty simple question and it takes you two minutes to answer.
However, that simple question has set you back 24 hours because the team couldn't do their job without you providing clarification.
On the other hand, when you work with a nearshore IT outsourcing company, the time zone differences are minimal. In some cases, they're in the exact same time zone as you.
This means that issues can be resolved promptly without any holdups for the team doing the work.
Most people don't realize how cultural differences can affect a working relationship until they experience it.
For example, in some cultures, people won't say "no" because it's considered a loss of face. Instead, they'll respond with "maybe" or "we'll try," though they actually mean "no."
If you aren't aware of this, you might think that your outsourcing team will be able to solve your problem because they said they'll try.
You don't realize that they're actually telling you: "no, we can't solve problem x" or "no, we can't get it done by date y." So, you could end up losing a lot of time.
With nearshore IT outsourcing companies, this isn't an issue. The proximity of the two countries usually means cultures are quite similar, or, at the very least, they understand one another.
The U.S. and Colombia, for example, have a close working relationship across a variety of industries. So, Colombians are quite familiar with how Americans work, and vice versa.
This reduces the problem of delays and miscommunication, which can save you a lot of time, money, and aggravation in the long run.
Some projects require in-person meetings. At the very least, if you're outsourcing a massive project to a company, you might want to check in every now and then.
Traveling to Colombia, for example, is far cheaper and easier than going to India or China. It also takes far less time, which means you can do so more frequently. It also doesn't hurt that El Dorado Airport in Bogota is one of the largest airports in South America with more than 1,250 international flights every week.
At PSL, we believe that any successful outsourcing relationship starts with the teams meeting face to face. In-person meetings can do wonders for relationship building, which is why we encourage all our clients to come and visit with the team they will be working with. Even a single face-to-face meeting can lead to a far stronger relationship.
Nearshore rates might be a little higher than their offshore counterparts. However, when you analyze all the factors involved, the costs are comparable, but the efficiency is far better.
Let's say you want to outsource a small project. You receive a quote of $25,000 from a company in India, while a firm in Colombia quotes $28,000. Both companies claim to be able to deliver in two weeks.
You opt for the Indian company because they are cheaper, as all the other factors seem equal, i.e. experience, skills, etc.
You hold a meeting with the new team on Skype as it's more cost-effective. Everyone seems to understand what you need. You've also sent over all the documentation, so everything should be fine.
At first, everything seems fine.
However, after the first week, you receive an email during the night. You answer promptly in the morning, and you forget about it. The same thing happens the following night.
As the deadline draws closer, you ask about the delivery date. That's when they tell you they'll try to make it. You aren't really worried, though. After all, they did say they'll try so that means they'll do whatever it takes, right?
Then the date of delivery arrives, and you have nothing. You eventually find out that the project was delayed by days because your answers to their questions came late due to time zones.
Since this particular project was part of a much larger one, it delays everything by weeks, or even months, leading toa massive loss of revenues. Had you opted for the Colombian company, you would have been able to supply the answers promptly, and they would have told you straight if they'd be late.
With nearshore IT outsourcing companies, these problems simply don't happen. The proximity and lack of time difference mean you can keep a much closer eye on what's happening. Secondly, you're working with someone who understands your culture. They'll tell you "no" if it's "no." You'd be surprised how much time, money, and aggravation that can save you.
Want to learn more? We'd be happy to explain in more detail!