Why Consider Outsourcing Anyway?
Of course you want to reduce costs. That’s a given. But all too often, outsourcing decisions are made primarily on direct cost savings and “perceived” value—rather than the “actual” value. 

Two decades into the 21st century, not having all of your resources in-house has become more typical given modern collaboration tools and due to experiences during the COVID-19 pandemic. 

Software is unique in that its technologies are universal – the platforms, frameworks, and languages are ubiquitous. There are just no physical barriers.  

When it comes to software outsourcing, there are two modalities to consider—offshore and nearshore—each having different perceived and actual value propositions. Yet, regardless of modality, the goals are identical:

• Expand access to a relatively untapped and available talent pool
• Accelerate productivity (velocity), and of course,
• Reduce costs.

So…What’s the Best Way to Achieve Actual Value – Nearshore or Offshore?
“Why pay more?” This point cannot be iterated enough. Outsourcing can provide significant cost savings or enable greater productivity within a budget. Not all outsourcing provides the same savings as labor rates have increased with rising demand in popular hubs, such as India and the Ukraine. Latin American countries, such as Colombia, are established destinations for outsourcing and significant labor rate advantages—approximately 70-75% over U.S. rates—and are forecasted to remain so for years to come.

Expanding Access to a Relatively Untapped and Available Talent Pool
There are many talented development and QA resources in the U.S., but finding the right one can take many months. And many of them are already locked into an opportunity (stock options and high pay) here locally so pulling them away is untenable. So why not consider tapping into an underutilized and available talent pool in less fortunate countries?

But which country/continent is the right one for you? Wouldn’t it be best to access talent in a cultural environment that is not-so-different from your own and who you can easily communicate with in English with minimal accents?

Latin America is a great example. Both Latin American and U.S. cultures were strongly influenced by European civilizations. They are similar in business approaches, work styles, and a general desire to meet or exceed expectations. Latinos are known as communicative people who are open, direct and have a creative approach towards problem-solving. The technical resources graduating from Latin American universities have identical skillsets as those of their North American colleagues. The same technologies, methodologies, and platforms are utilized. Additionally, English language is prevalent among technology professionals in Latin America.

Accelerating Productivity (Velocity)
We want great talent that help us to overcome our biggest technological challenges. We want smart people to constructively challenge our assumptions. We want to discuss better/faster approaches and other alternative approaches that are more maintainable over time. Unfortunately, this can be elusive given offshore cultural differences.

With today’s online communication tools, distance is nothing. These tools enable alignment and real-time collaboration. But they can’t help when it comes to time zone alignment. Forcing two teams separated by two vastly different time zones to collaborate impacts work life balance for both teams. Daily standups, backlog grooming sessions, sprint planning, and other meetings at or before dawn or after dusk and maybe even as late as midnight impact home life and job satisfaction. 

Something else to consider are verbal communication challenges due to accents. Many offshore English speakers have accents that are difficult to understand. This is not the case with most Latino accents. Partly because those of us in the U.S. have become quite  accustomed to the accented Latino English.

Choosing an offshore modality can introduce cultural challenges as well. In India, as an example, you are the client and you are not to be disappointed or challenged. They are extremely hierarchical and you are not to be questioned or disappointed. What could be better? Here is the problem with that; if you tell them to build a square wheel they will build it. And if they are going to miss a deadline, the last thing they want to do is tell you up front and disappoint you (as if you aren’t going to be disappointed when the deadline comes). Go figure. This gives you no options to compromise to hit a date and then subsequently complete the deliverable. Experiences like these have given outsourcing a bad name, when in fact it is the offshore modality that should be blemished, not the nearshore modality.

Reducing Costs
The offshore modality provides the lowest direct FTE cost. But this gap is closing. Your cost in India might be $2,500 – 3,000 USD per month per FTE and your cost in Central or South America $3,500 – 4,500 USD per month per FTE—this includes all salary, bonus, taxes, benefits, office & equipment, and more. But as compared to North America costs averaging $12,000 – $15,000 USD per month fully loaded, the savings are significant with both modalities. 

The turnover rates in India are high as well. What does this do to value achievement? What good is it to have the rock bottom low price, but every year you lose 3 – 6 months of productivity for each new resource to come up to speed. It’s not uncommon to have 60 – 70% attrition in a given year in India. Resource turnover in Colombia is usually about 8 – 10%. Less than that which we experience in the U.S!

Lastly, what is it worth to you to have real-time collaboration? This includes daily standups, backlog grooming sessions, Sprint planning, QA test case generation, architectural decision making, issue resolution, retroactives, and more.  With nearshore outsourcing, the real-time collaboration happens all day every day.

Nearshore Outsourcing is Clearly the Best Value
Given today’s Agile methodologies, frequent collaboration is simply a must. We want to increase velocity while producing high-quality, scalable, and maintainable software. We want people who are passionate and share a sense of urgency. We want technical experts that will constructively challenge us; and mostly, we want time-zone aligned collaboration that makes everyone’s life easier—not only for those who are on stage, but also for those who are behind the scenes.

With the offshore outsourcing modality, you may find slightly lower direct cost options, but effective team collaboration and success can be elusive due to time-zone, cultural differences, and language (accents) challenges.  

With nearshore outsourcing you not only stretch budgets further, but also assure that you are achieving actual value – making sure that you are getting quality results and understanding of what your priorities and goals are and making them possible without costing time.