What’s New on Outsourcing Market?


Industry News
Oleg Mykhaylovych
23 May 2016
1584

Modern business is dependent on numerous significant features. We are going to focus our attention on the fact that efficient and systematic development is not always possible in-house with an all-sufficient team.

Unfortunately, appropriate facilities and the resources are not always available, no matter how great company’s endeavors are. In this case, the only sensible and reasonably priced method to guarantee permanent growth is to export manufacturing and other supply chain functions.

We talk about ‘outsourcing’ and ‘offshoring’, which are somehow frequently equalized. Nonetheless, the terms are likely to be distinguished. Focusing our attention on ‘nearshoring’, we should define previously mentioned terms to clarify the glossary before proceeding.

Outsourcing

Outsourcing involves sourcing outside third-party companies in order to accomplish chosen tasks and/or supply chain functions. For instance, a web development team can be outsourced by a telecommunication company to create and manage its website. With the concept of outsourcing, long-term commitments are necessary. The arrangements are defined by negotiating a contract for a single work. When it’s done, companies can either prolong their co-working or not. Another benefit is that the company that outsources does not have to change its location, no matter if it works with third-party players locally or offshore. By far, this fact strongly distinguishes outsourcing from ‘offshoring’.

Offshoring

offshoring

Offshoring is basically moving an entire business process (or the entire company) to another location offshore. Expanding the allegory from our previous example, a London-based web development agency relocates its coding and IT process to Mumbai for a permanent stay. And, by far, such a serious change is related to the pricing. Putting aside cultural and language barriers, the cost of work in such countries can be incomparable lower.

Western countries mainly focus their attention on such offshoring destinations as India, China, and the Philippines. You have probably noticed that the distance between these countries and the Western world is quite enormous. That is what distinguishes it from ‘nearshoring’.

Nearshoring

Nearshoring has many similar features to offshoring, however, the manufacturing (or the entire business) is typically transferred to a location within company’s own region. Our good-old UK-based web development company can move its coding to Germany in order to fit the concept of nearshoring. And, of course, the pricing is again considered as the main reason for such a radical change. The company still benefits from lower prices, but without severe effects of cultural dissimilarities and differing time zones.

Remote Team

remote team development

Aside from aforementioned concepts, you might also be interested in the remote team. You can distinguish two different kinds of remote teams:

  • A group of people working remotely – in the field or from home;
  • A group of people working for another company but involved in a certain project of yours.

The second type of the remote team more or less recreates the understanding of outsourcing as this team closely cooperates with your company and does not work alone. Moreover, both companies keep an eye on every possible stage of development, which is frequently dropped out in terms of conventional outsourcing concepts. Now let’s talk about pros and cons of various outsourcing models.

We suggest it’s a good idea to start with comparing nearshoring and offshoring, pointing out functional differences and possible challenges. Both of these options are great in case if finding a professional yet low-cost team is impossible domestically. The difference is – nearshoring would be relatively cheap but closer whereas offshoring provides companies with exceedingly cheap labor located far away from the company itself.

The Expansion of Nearshoring

Europe and its eastern territories have provoked a great rise of nearshoring. We have proper bits of evidence, an article published by ComputerWeekly, which demonstrates the experience of London-based minicab company Addison Lee. The IT element of their work was moved to Russia – instead of previously chosen India. This decision was made as a result of a meticulous research. Having chosen teams in both countries, the company sent a week’s worth of source code to write them in a new language. Of course, it was a test. The approach of the Indian team was inelaborate and cold – they copy-pasted all deliberately included mistakes. Overall, they had not a bit of interest in what they did and for whom they did it. In contrary, Ukrainian team from scratch noticed all the mistakes and was concerned with a functionality and our attitude. Consequently, a Ukrainian team was chosen for further co-working and collaborations.

The biggest outsourcing providers have already noticed unique skills that are widely represented in Eastern Europe. The traditional outsourcing locations like India are seriously threatened by the teams from Poland, Russia and, for most, Ukraine.

Data Security and Nearshoring

Offshore companies and their relationships with the date security (customer records, invoice details, and any other kind of sensitive information) is a problematic phenomenon. Abided by the same data protection legislation, countries within the European Union are mostly a safe choice. Alternatively, information breaches in such offshoring locations as the Philippines and India happen too often. When the damage is done, eventually not your savings nor your reputation can be saved from a pitiful loss.

Offshoring and Its Advantages

Numerous companies stick to the services provided by India and China. It’s not possible that all of them are wrong and foolish, right? Therefore, you can find some obvious advantages (which can prevail over that of EU colleagues) within the concept of offshoring.

Choosing between nearshoring and offshoring, you should also take contractual sophistication into account. On one hand, Indian companies have a wide range of knowledge in the field of negotiation and law matters. On the other hand, Eastern European IT companies understand a little in this sphere. However, in case if you seek lower prices for better skills, contracts and negotiations can be temporarily put aside.

Ukrainian, Polish, and Russian companies are mostly young, which doesn’t give them a chance to prove their professional skills and reputation. You know how they say, a pig in a poke. Nonetheless, good communication skills can help you understand if this relationship is going to last and also help your nearshoring team to figure out the type of IT work you require.

Remote Team vs. Outsourcing

Typically, outsourcing solutions are involved in cases if the company does not have sufficient resources (skilled labor resources, mainly) in-house to complete a certain business task.

Team management is usually an unavailable option within traditional models of outsourcing. Basically, you cannot monitor who exactly works on the project, especially if a company gets involved with offshore outsourcing. Unfortunately, it is a common practice with outsourcing companies: initially, you hire a specific worker that utterly matches your requirements to find out in a few months that this professional was eventually moved to another project without informing you. His or her place is usually taken by a remote worker of unknown skills. Therefore, it all ultimately raised a great mistrust between providers and customers. It might also be a thoughtful reason to overthink your relationship with offshore outsourcing companies.

Remote In-sourcing

The appearance of remote in-sourcing was only a matter of time. This concept is particularly designed to enhance the quality of outsourcing practices. Simply put, it enables a close cooperation between company’s employees and the remote team to guarantee both cost-efficiency and project control. This model provides an opportunity to customize the remote team, treating the co-working with full transparency – the leading company will know exactly who works and on which part of a project the chosen employee works. Overall, this concept guarantees a reasonably high amount of control with minimal wages.

By all means, this mixed model is far more efficient than its forerunners, with a high level of risk management and overall control over the process. The remote team is easily customizable to meet the needs of a client. Reaching business goals with such team is way simpler. Also, it means that the same people will work on the same projects (even though they are remoter employees), which means you do not have to worry about data security and perpetual re-training of your staff.

No matter which model fits your needs and becomes the best choice, you will always have to consider some possible issues. Nearshoring or offshoring, outsource or in-source models – everything works in proper situations. Nevertheless, you should remember that India remains the dominion of skilled workers possibly minimal wages. Eastern European companies, however, are filling the nearshoring market with priceless professionals, which obviously will make the sphere of global outsourcing more competitive. And every businessperson knows that a competitive environment is a better environment.

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Custom Software Development: Pros and Cons
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Outsourcing Issues in Software Development