Offshoring vs nearshoring

Building your own internal IT structures is a solution which, although tempting, generates high costs. Getting the right IT specialists is very difficult, and the impact of AI, ML, and robotization on workplaces may cause the situation when the specialist employed today, tomorrow will not be necessary anymore.

That’s why it is such a good idea to use outsourcing. That is confirmed by the data provided by KPMG, according to which in the 2017-year, 727 IT outsourcing contracts worth USD 137.2 billion were signed worldwide. IT outsourcing is as often as not chosen by government institutions, and companies from sectors such as banking and finance, telecommunications, or automotive. As far as geography is concerned, EMEA is as often as not used by countries such as the UK, Spain, Denmark, the Netherlands or France.

The popularity of offshoring, i.e., outsourcing to lower-cost but geographically, culturally and mentally distant countries, has increased with the development of new technologies. Thanks to e-mail and communication solutions such as Skype, this form of outsourcing has become very popular, and companies have decided to use it on an ever-larger scale – no matter where in the world a potential supplier is located.

Nearshoring, i.e., outsourcing to countries close to a specific company, requires higher costs than in the case of offshoring but is a guarantee of the same culture, time zone, and flexible cooperation. For companies from the United States, Mexico is a popular destination for nearshoring, while Eastern European countries are becoming increasingly popular among European companies.

The popularity of offshoring, i.e., outsourcing to lower-cost but geographically, culturally and mentally distant countries, has increased with the development of new technologies. Thanks to e-mail and communication solutions such as Skype, this form of outsourcing has become very popular, and companies have decided to use it on an ever-larger scale – no matter where in the world a potential supplier is located.

Offshoring is undoubtedly the most cost-effective approach to outsourcing. It allows you to build a business team consisting of full-time employees, working relatively independently, but under some level of control thanks to modern technologies. It makes it possible to outsource processes that the company would not be able to carry out using its own internal resources, and additionally it makes it possible to employ people regardless of geographical constraints. This is a perfect solution for small and medium sized businesses, as well as start-ups that are looking to reduce costs and therefore cannot afford to hire their own in-house team.

Nearshoring, i.e., outsourcing to countries close to a specific company, requires higher costs than in the case of offshoring but is a guarantee of the same culture, time zone, and flexible cooperation. For companies from the United States, Mexico is a popular destination for nearshoring, while Eastern European countries are becoming increasingly popular among European companies.

Nearshoring allows for greater control over the project and can facilitate collaboration between the company that needs outsourcing and the outsourcing partner that is doing the work. It lets you maximize business efficiency and reduce the barriers typical for cooperation in outsourcing. This is a very good solution that is most popular with decision makers and CEOs of smaller and medium sized companies that have already gone through the startup development phase and still want to use outsourcing services. However, they want to reduce the distance between them and the contractors they hire.

The following is a comparison of offshoring and nearshoring against 4 significant criteria, such as cost, quality, communication, and law.

1. Service cost – In a situation where the priority in choosing a service provider is the service’s low price, offshoring is likely to be the best option – the cost per hour in India or Asia is still much lower than in Europe. However, it is worth taking into account, apart from the price of the service itself, other charges that may have to be covered. Travel, accommodation, daily allowance, time spent on a business trip – these are issues that many people do not take into account and which generate really considerable costs. And they are inevitable. Despite the high level of digitalization, face-to-face meetings are still necessary to successfully start a project, understand each other’s cultures, and solve any problems that may arise. So the smaller the distance to travel, the higher the chance to get to know the market and the service provider better and, consequently, the lower the risk of making an unfortunate business decision.
2. Quality of work – Although the education and expertise of employees are not the key decision factors in outsourcing simple, automated actions, their impact on the overall quality of the project increases as the level of advancement of the outsourced tasks increases. This is the case, among others, with IT outsourcing. That is why countries such as Poland, which have a number of well-known technical universities, are becoming increasingly popular among countries that outsource work. According to data provided by the UN on the level of education in the world, Poland ranks 35th among more than 200 countries, and by comparison, India is only 135th. Although specialists from Eastern Europe are more expensive than specialists from India, the quality of their work, which translates into the overall quality of the project, definitely justifies their rates.
3. Communication – The key to success in teleworking is communication. It is therefore worth making sure that the information that is communicated outside is understandable. First of all, it is difficult to work with people with poor knowledge of the adopted language of communication (which is most often English). Linguistic misunderstandings can mean low productivity and thus loss of hours, days, or even whole weeks of work (depending on the size of the project). Secondly, when working with employees from far away countries, it is also worth taking into account any cultural differences that may affect both the tools used at work and the schedule of days off. It is also worth thinking about time zone differences. Even if a potential supplier shows a genuine desire to talk at night, this will not necessarily be the best way to do business (even in the short term). Being able to react at any time of day or night, in case of urgent and unexpected events, is really valuable – it helps shorten the decision-making process and increase overall efficiency. This is an undoubted advantage of nearshoring.
4. Legal formalities – Awareness of the regulations in force in the country to which the work will be outsourced can really save your business. Therefore, before starting cooperation, it is worth checking how the issues of the supplier’s error statement are solved and what the insurance covers. It is necessary to make sure that the exchanged data and trade secrets are safe and to think about the political situation in the specific country, how often the law changes and how foreign capital is perceived there. It is also worthwhile to pay attention to the rights that employees have in that part of the world. According to the saying in the legal profession: “Ignorantia legis non excusat” (“ignorance of the law is no excuse”).

Poland is one of the increasingly popular outsourcing destinations. The position of this country on the map of outsourcing services is growing stronger and stronger. We have got to admit that the prices offered by the Polish IT market are no longer as low as they used to be a few years ago (although they still arouse the enthusiasm of foreign clients). However, the knowledge and skills of local specialists definitely distinguish Poland in the international arena.

Poland has some of the best programmers in the world. It is ranked 11th on the list of the world’s 50 most computerized nations, and 13th in Europe in terms of English language skills (thus far above the European average). With 37.97 million inhabitants and many world-renowned technical universities, we have access to a large pool of qualified IT talent. All this makes Poland the most popular outsourcing destination among all European countries due to ATKearney Global Services Location Index. Our market has already been recognized by companies such as Accenture, Credit Suisse, Goldman Sachs, Zurich Insurance, and Cathay Pacific Airways. But this is not the end of it. In the area of outsourcing, we surely haven’t said the last word yet, that’s why the years to come will be marked by the development of this area in Poland.