The world is becoming more connected every year. This applies to both our personal lives and our business lives as well. Through technology, we’re able to talk to our friends and families all over the world in an instant, and businesses are able to complete transactions, hire staff and conduct various business activities in the same amount of time.
This has opened up the opportunity for businesses to look for arbitrage opportunities when hiring their tech teams through outsourcing positions in other countries to work remotely for them or building complete tech teams there through nearshore outsourcing.
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What is nearshore outsourcing?
Outsourcing is the delegation of tasks to someone else that’s not part of your company. This can happen in different types of roles from accounting, marketing, all the way to software engineers. Nearshore outsourcing goes one step further and can even act as a natural extension to your core team.
At its very core nearshoring is the outsourcing of tasks, roles, or teams to a neighboring country to where your company is located. In tech, nearshore outsourcing is usually thought of as satellite offices that are completely built from the ground up to work specifically for the company that hires them – an office of fully dedicated outsourced software engineers. Companies use these nearshore tech teams for non-mission-critical roles and support operations.
This is in contrast to offshore outsourcing, which can involve task delegation across the globe. There are many reasons a company might choose to build a team through nearshoring rather than set up an offshore team, and they come in the form of internal and external driving forces.
Internal driving forces
The main advantages of nearshore outsourcing are that businesses can save money and free up time. However, this in itself can be as a result of internal capacity constraints, be it that the company doesn’t have enough staff to carry out the tasks they need to in order to grow, they don’t have the funding to grow their team to keep up with demand, or their product or service demands a low operational cost structure.
However, it may not strictly be down to numbers, and indeed it could be down to the talent pool to which the company has access. It was estimated that in 2017 there were 500,000 open technology positions, but only about 50,000 people graduating with a computer science degree. This has driven many US companies to turn their search globally, and naturally looking at Canada and Latin America to build nearshore remote teams to satisfy their engineering needs.
But internal driving forces aren’t the only ones to take into account. Sometimes the need for nearshore outsourcing arises as a result of external factors.
External driving forces
The lack of access to a talent pool of potential candidates makes filling jobs harder, but the reason for setting up nearshore outsourcing teams can also be more about the money involved. Companies try to take advantage of wage arbitrage by outsourcing tasks to workers in countries with lower wages, obviously saving money.
Shifting exchange rates can make nearshore outsourcing more favorable than offshore outsourcing, or outsourcing to teams in the same country. This can make it far more viable for a company to have its business based in nearby countries, and things like corporate tax rates can also have an effect.
Tax changes are an example of something changing outside of the company that drives it towards nearshore outsourcing. But there are also global events and changes to take into account as well.
The effect of global events
The Covid-19 pandemic has undoubtedly made the world smaller for many businesses. Travel restrictions may have hampered businesses’ plans to set up teams halfway across the globe, and social distancing rules have shifted the focus on building teams under one single roof to fostering remote and global connectivity. Opening the door for global talent to find global opportunities.
Latin American nearshore remote teams are rising as a popular option given their variety of positive characteristics – it almost feels like they were overlooked for the better part of the 2010’s – like proximity, cultural affinity, low cost of living, highly technological acumen, fluent English, and the high number of engineering graduates.
Being able to use teams that are close is important, but as we noted above, other shifts in things like currency rates and labor costs can drive a company towards nearshore outsourcing. Even changes in regulations, such as the introduction of GDPR in 2018, can have effects on where companies can set up outsourcing teams, in this case depending on where they are storing and using data.
These changes can drive just about any business to the idea of nearshore outsourcing. However, some types of companies are more prone to it than others.
The types of companies most prone to nearshore outsourcing
It’s clear that companies with a strong digital focus, or indeed a focus on remote working, are the ones who stand to benefit most from nearshore outsourcing. Being able to hire software engineers for example in the same or similar time zone to your own allows you to make use of lower wages in nearby countries, while also being able to operate both teams at the same time.
This makes communication easier, and so nearshore software development is ideal for teams that are constantly developing new products that need to be in constant communication with each other. Companies with previous outsourcing experience should be able to seamlessly move into nearshoring without much of a problem. On the other hand, companies looking to reap the benefits of nearshore outsourcing with little experience should take a closer look at the key steps to make it happen and introspect as to the why of this move.
Setting up a nearshore outsourcing team
While there are many advantages of nearshore outsourcing, there is also a lot for businesses to consider when deciding to build a nearshore team.
The first step to consider is an introspection to understand the reason for why nearshore making sense for your business – is it for operational cost reduction? to close skill-gaps? to increase delivery speed? provide better customer support? This will inform how much you’ll decide to invest and what outcome you can measure to see if you’re investment is delivering.
Next, consider the technical level of expertise they’re looking for and which country can deliver on those expectations from a talent pool perspective, the costs associated with employing and managing the team, as well as the laws and regulations of the country being evaluated.
Finally, look at IT partners with experience building nearshore teams. Agencies who’re experienced with the Build-Operate-Transfer Model can be best suited to help you navigate the ins and outs of building a nearshore tech team from scratch. Be sure to evaluate all your prospective partners under the same lens and always make a gut check.