Should You Go With Nearshore or Offshore Software Outsourcing?

11/06/2017 07:54 am ET

By Marcelo Tribuj

Outsourcing software development projects have become a central and strategic issue for most companies, since we all know that hiring software engineers in the U.S. is difficult, time-consuming and expensive. Even if you find the right person, it takes a lot of effort to keep them motivated and working for your company. I'm the CEO and co-founder of a nearshore software development company with development centers in Latin America, focused 100 percent on the U.S. market. I've spent the last 15 years working with CEOs, COOs, CTOs and VPs of engineering from all-sized companies, learning about the challenges they face with remote teams and helping them to build distributed engineering teams that deliver.

While most companies prefer an in-house software development team, at some point, the product roadmap and the lack of resources ends up pushing them to work with an outsourcing partner. Many times, this happens during a critical turning point and the startup goes with a company that someone referred, or simply with the vendor that sends a cold email at the right moment.

The global outsourcing map today has three strong regions: Latin America, Eastern Europe and Asia. Each region has pros and cons, and you'll need to evaluate different variables to make the right decision.

The business model for outsourcing is always changing. We used to feel very excited about the competitive offer that India brought to the table: scalability, low costs and the famous "we work while you sleep" factor. Then we fell in love with the agile methodologies. We understood that being in the same time zone as our developers and English fluency was key to a project's success.

Then, Eastern Europe presented an interesting model: The time zone was closer to that of the U.S., the engineers were skilled and while the rates were more expensive than Asia, they were still very competitive compared to U.S. costs. For European companies, I will always recommend working with an Eastern Europe vendor.

People began looking to Latin America as a region for IT outsourcing 20 years ago. It has become a strong player in the last five years. During my first business trips in the U.S., most of the founders of companies I met didn't know where Argentina was located or that was a different country than Brazil. I had to explain what companies had operations there and why the free and public university education enabled the creation of a strong and big pool of software engineers. Now, everyone knows that Latin America is a strong player and that it offers a great blend of important factors: cost, quality work, time zone equivalency and English fluency.

When we are choosing nearshore or offshore software partners, there are a number of factors that we need to consider: culture and communication, development methodology, technologies and different models of project management. Having a clear vision of the type of solution you need and the goals you are pursuing can help companies identify the perfect vendor.

Transparency and a good cultural fit are essential to avoid delays in projects and problems with the communications. Regional outsourcing (nearshore) in neighboring countries or in the same time zone tends to be more accessible and reduces the risk of language barriers and differences in working hours.

Offshore outsourcing in more remote areas with significant time differences (over six hours) can offer lower costs. The main disadvantages of the offshore model are the potential costs of cultural and linguistic differences, combined with the short interaction window. These factors can result in frequent reviews and time lost due to lack of communication.

Each model has pros and cons for both parties in the process. You must understand what type of service you are expecting to receive and the constraints that each model has so you make a decision that allows you to produce the results you are looking for.

A final recommendation: Always speak with the people who will perform the work for you before you hire them. You need to know who'll be working for you and you need to feel comfortable working with them.

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Marcelo Tribuj, CEO of Truelogic Software, is an Inc. 5000 entrepreneur with 20 years of experience.

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