What is Nearshoring?
Learn how Nearshoring beats traditional outsourcing and why it could be a game changer for UK and EU companies?
5 FEBRUARY 2024
MARKUS VAN AARDT
OUTSOURCING BPO AGILITY SOFTWARE ENGINEERING ARCHITECTURE CAPACITY CAPABILITY RESOURCING
As economies develop over time, companies are looking for advantages and innovations in how they deliver products and services to a global market. For decades, organisations leveraged outsourcing as a way to access technical skills at scale or at reduced cost – especially in delivering information technology. While it mostly provided acceptable quality at reasonable cost, there are some challenges in this way of work. Nearshoring reimagines the outsourcing model to the benefit of companies and their clients.
NEARSHORING is an alternative approach to outsourcing business functions (such as software design and development) which takes into account time zone overlap between the company and sourcing firm to maximise common working hours, leverages language and cultural alignment to improve communication, collaboration and delivery while offering real and sustainable cost savings to the company.
Information Technology outsourcing today
Outsourcing is a business strategy to delegate delivery of non-core business functions to third party providers. In general terms, companies award contracts to service providers who demonstrate the necessary technical capability at the best possible cost. This has become and acceptable business practice across the world, but has been more prevalent in developed economies, while the providers are often found within developing economies. The outsourcing of information technology services has mainly benefited organisations residing in countries such as India, China, the Philippines, Czech Republic and Indonesia.
The challenge, however, for the buyers of these services, lies in the geographical distance between them and the providers of the services. While cost benefits almost always work in their favour, operational, language and cultural challenges often make these engagements more challenging and sometimes negate the financial benefits.
Nearshoring is a reimagined interpretation of outsourcing to address some of the challenges of traditional outsourcing. The aim of nearshoring is to create a more flexible, compatible and beneficial sourcing model for companies who consider long-distance traditional outsourcing partners.
Nearshoring leverages overlapping time zones, common language and cultural alignment to improve the engagement between staff and contractors. So, while nearshoring offers many of the properties of traditional outsourcing, the difference lies in the reducing the negative impact to clients to multiply the benefits.
Below, I expand on how the different nearshoring dimensions can benefit companies if they engage with the correct partner.
Time zone overlap
Engaging outsourcing partners in different time zones may provide a financial benefit. The problem with this is the impact it can have on delivering projects and services. Many organisations have adopted (or are in the process of adopting) agile methods in the small, or frameworks like SAFe at an enterprise level. While the frameworks tend to work well (if implemented and executed properly) two key ingredients of these approaches will always remain Communication and Collaboration. When teams do not share the same bulk of a working day, the engagement is subject to poor flow. What happens when the technical lead or star developer is unavailable during your product owner’s working day? Of it the architect cannot answer critical questions until next week Monday afternoon? The question could still be answered, but much, much later than when it was required.
Similarly, how do you schedule and successfully have joint design sessions or focused debug war rooms when key individuals don’t share the working day? After hours, before hours and overlap hours – this is not conducive to productive projects.
Nearshoring tries to address this by focusing engagements between the company and service provider where the maximum overlap in working hours can be achieved. Where overlap cannot be achieved with an eight-hour window, six or seven hours can prove to be sufficient and preferred over four-hour windows. This is achieved by selecting providers closer to the client’s geographical longitude, therefore time zone. Companies based in North America are therefore better served by service providers in South America, and European and British companies by ones based in Africa.
A slight deviation of the time zone dimension is geographical proximity. This is where companies and services providers are based in neighbouring countries, while a cost arbitrage exist between them. Companies who have this option can often purchase a service from a neighbouring country at a lower cost than what their local markets demand. In this case, there is often a secondary benefit in cultural alignment between the geographies, which can further benefit the communication and collaboration between the parties. Neighbouring countries often share languages, history and even cultural history – think Benelux, Germany-Austria-Switzerland and Southern African Development Community (SADC).
Companies who cannot find skills locally are often able to source them from outside their current geography using the same approach. While there may not be a cost benefit to the company, the skills shortage challenge can be overcome in this manner.
Language and Communication
A very important element to successful engagements remains the ability of the parties to communicate effectively. English remains the leading language in business and academia (read more here), but also has over 160 recognised dialects. Companies should prioritise service providers that have a compatible dialect to their own, especially if the bridge language is neither side’s native language. British companies should, for example, consider using nearshoring destinations with either neutral or closely aligned accents to their own. The same would go for French, Spanish or German.
South Africa has become one of the Anglophone destinations of choice for call centre outsourcing (BPO) due to the neutral accent that developed since before the 1900’s. Companies in the US, UK and Europe prefer South Africa for high value transactions. While India remains dominant, their position is mainly driven by high volumes and low value transactions. The reasons behind South Africa’s popularity are driven firstly by the neutral English dialect and the high education levels of the general population.
This benefit is equally exploitable in the complex technical environment of Information Technology.
Equally important but often overlooked, is the importance of cultural alignment. Nearshoring aims to provide services that are compatible with client culture, ways of work, work ethics and business practices. While we live and operate in a global economy, much of a company’s unique character is coded into the organisational DNA. The most efficient nearshoring engagements will take this into account and be structured to best suit the client conditions and environment.
South Africa as Information Technology Nearshoring destination
South Africa is an emerging economy and leads the African continent in technological capability and innovation. Business is conducted predominantly in English, which is regarded among Anglophone countries as having one of the most neutral accents in the world. The country’s growing call centre / BPO industry is testament to this, as well as our work ethic for high-value transactions.
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