Nearshoring: Key Success Factors
October 12, 2018 – Do you want to make your company more responsive? Do you want to be ready to respond and scale for your AI/Robotics/IoT business needs? Creating a nearshore concept for digital services might be your solution.
Many of the labor-cost advantages associated with nearshoring may be lost if you fail to spend more on digital automation in the near future. Rapid technological advances in robotics, connectivity and automation are introducing new variables. Here are our key success factors for companies.
Nearshoring (nearshore outsourcing) is when you get your services or work performed by people in countries adjacent or next to yours – “in close geographic proximity to the client country”. Offshoring is the relocation of a business process from one country to another in general. This can be setup internally with your own firm’s talent or alternatively with an external partner (service provider).
Companies of all sizes, in all industries and in all countries face the challenge to build and maintain digital organizations and applications to support their business. Executives strive to achieve this at minimal total cost of ownership and risk whilst providing the best possible quality, a conflict which is often difficult to resolve.
Resolving the dilemma many companies face with in-house or outsourced digital services , a nearshore service provider (e.g. PwC, IBM, Infosys or others) can help executives manage costs and quality. Our experience shows that running non-core competency work in various sites internally can lead to increased development and maintenance costs while quality decreases.
With nearshore services of prominent service suppliers, companies can source service activities to a foreign, lower-wage country that is close in distance, culture and working attitude, leading to cost savings at high delivery quality.
2. Key Benefits of Digital Nearshoring
Time Zone Compatibility
With a time zone difference of max. 1-2 hours within Europe, clients and onshore project teams are able to collaborate in real-time with nearshore team members leveraging conference calls, video chats and typical email communication with little to no delays in response. This dramatically increases collaboration across the extended project team and significantly reduces the impact of miss-communications, false assumptions and the need for extensive documentation.
Most nearshoring countries providers are highly proficient in English (or the language of their client), even if it is not their official language. This can be a great advantage when communication is primarily via phone and email.
There can also be cultural difference that can impact the work that the client does, in India there are completely different holidays then there are in the Europe or the United States. Nearshoring greatly reduces these types of problems based on the fact that there is better communication and coordination between countries that have similar cultural backgrounds.
Agility and Control
Nearshore services and its service delivery model must provide tailored services and deliverables while providing you (the client) with maximum transparency on work products. A strong partner builds long-term trusted relationships with you and is very responsive and flexible to your needs.
Costs and Investments
Building on a service supplier’s nearshore services you will have a significant cost advantage. You will benefit from the investments of the initial development, deployment, maintenance and upgrades, and built as well as from the sustained operation.
Quality and Performance
Some of your competitors will have faced significant quality issues with off-shore or outsourced digital application development. Choose a partner with a delivery model that has a proven track record to avoid such negative experiences. Double check the list of reference clients provided.
3. Required Services (external or inhouse)
When defining a potential scope of digital processes to be considered for digital nearshoring, you should evaluate the list below. External service providers must offer a wide spectrum of services, tailored to your specific client needs. You should look for your relevant key areas when selecting a service provider as partner.
In your engagement to achieve business results you need to carefully consider your company size as well as complexity and take into account the project situation and the concrete needs of your business. Typically, over the course of time, your service provider will, jointly with you, adjust the services to meet the changing business and IT needs. Here is what your service scope might look like:
IoT and Connectivity Services
- Software development expertise in Java/C/Python/Swift/PHP
- Engineering and Electrical development and support
- Agile software engineering deployments
- Machine learning, big data, and DevOps
- IoT business strategies across industries and sectors
Custom Solution Development and Support Services
- Extension/enhancement of existing or build of new Digital applications
- .Net/Java/C++ or SAP ABAP programming/consulting, specific applications tailored for specific client needs such as custom reports, interfaces, conversions and enhancements
- Maintenance of custom solutions
Analytics Intelligence Services (Big Data, BI)
- Requirements Analysis for Big Data and BI Solution
- Design and implementation of information providers
- Data integration (ETL & cleansing, custom development)
- Report design & publishing in enterprise portals
- Strategic and Process oriented analytics & data mining
- EDM/BI Maintenance and monitoring
Technical Integration Services (Middleware)
- Analysis of current processes and system set-up
- Redesign of system landscape and data flow based on functional process improvement/integration
- Technical integration of systems
- Improvement/enhancement of selected components’ functionality
- System performance measurement
People Integration Services (Portals)
- Identity Management
- Content implementation
- Portal administration concepts
4. Extended Services (external or inhouse)
The best in class service providers offer furthermore an extended spectrum of services, tailored to your specific client needs. Such service areas might be:
- As-Is Analysis & Review Services
- Project Management/Team Leadership
- Quality Management
- Testing Services
- Training Services
- Application Maintenance Services
5. Key Success Factors
The increase of European outsourcing locations means that European firms have multiple options to pick from to use nearshore IT services. Poland, Bulgaria and Romania are still considered to be the best countries for nearshoring within Europe. Hungary and the Czech Republic are additional options that are viewed within the region. Additionally, Spain and Ukraine are considered in several client use cases. For more details on each location above and its criteria, please contact us on here.
Resources based in nearshore centers (e.g. in Eastern Europe) must be very experienced in implementing your solution (e.g. IoT/Automation/SAP). Make sure you check hiring process and talent pool and the development of their top performers. Consultants must be at least bi-lingual, speaking English, German and several other European languages.
Service Provider Visit
Visit your prospective nearshore center and get a feeling for how they work with existing clients. Live a day or two in the life of your nearshoring partners, see their day-to-day routines. Talk to the developers, testers and quality assurance people and find out how they work, at the end of the day.
Proven Track Record
Teams and management must demonstrate a proven track record: running delivery centers for many years for a large spectrum of clients in your industry.
The presented delivery model must give everyone the ability to work remotely or to move consultants on-site quickly when required by the client.
Strategic location positioning must enable the partner to meet your (customer) needs at very low cost. Furthermore consultants must be able to travel with no visa restrictions.
- Check for competitive rates and take advantage of labor arbitrage
- Customers using near-shore services centers can achieve significant savings
- Working with on-site services a customer can achieve up to 30% savings in comparison to using competitor development services
- With an already existing service center, a chosen delivery model additional 25% cost savings are regularly achievable
Rapid technological advances in robotics, connectivity and automation are introducing new variables that compound the challenge, but also introduce some new opportunities.
Given these factors, executives and investors need a rigorous process to assess, design, and implement strategic digital sourcing programs.
Management teams that get above process and decisions right can give their companies a clear competitive edge.
For more help and input on each key success factor or on how to get started, please contact us on www.avoras.com.
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