Why is software nearshoring a (most) suitable supplement to in-house resources?

Software nearshoring is a special form of software offshoring that involves shifting activities to countries that are geographically close. Usually, these are countries in Eastern Europe or North Africa. The purpose of this shift is to reduce costs while maintaining the quality of work and results. There are four significant reasons for operating IT nearshoring:

Today, hardly any company can operate without IT service providers. In a survey conducted by comcarch.de, the majority of companies surveyed (42.1%) reported working with three to five service providers. 5.3% had six to ten service providers, and 1.5% had more than ten service providers. About half (51.1%) worked with fewer than three service providers. When asked about the reasons for outsourcing software development to nearby countries, the following reasons are usually mentioned:

• Saving costs
• Increasing flexibility
• Easy access to qualified personnel
• Utilization of a similar culture and work attitude

Reason #1: Saving costs as the main driver

Saving costs is one of the most common reasons for software nearshoring. Labor and wage costs are cheaper in our eastern neighbors such as Poland, Slovakia, Slovenia, or Serbia than they are in, for example, Germany. Serbia is by far the cheapest country in this comparison. The costs there were sometimes only a fraction of what had to be spent in Western Europe. However, the qualification of the workforce in nearshoring is high. Highly trained IT specialists with a high level of education work in many countries. English has become the standard language in the IT industry. Therefore, communication is usually a non-issue.

Of course, IT services in Asia are much cheaper. But communication is much easier when shifting work to nearby countries than when offshore. This is simply because there is either no time difference or it is at most one or two hours. Urgent matters can be delegated to the partner and a quick processing time can be expected. This means maximum flexibility with high quality. Payment is based on daily rates, and recruitment costs are eliminated.

With outsourcing to nearby countries, companies can keep their own IT "lean" and avoid building up excess capacity. Because excess capacity can permanently burden the IT budget without delivering corresponding added value.

Reason #2: Increasing flexibility

Many activities in the software environment are temporary. Often, these are time-limited projects. Hiring permanent employees for this purpose may not be the best or most economical solution. In many projects, the requirements are very specific, and an employee who was perfect for one software project may not be able to meet the requirements of the next project due to their specific skill set.

When companies use nearshore project resources to support software development, they can choose whether to outsource only a specific area, such as application development, support, or testing, or entire projects to the partners.

Here, nearshoring is ideal for accessing a pool of specialists who are just right for the job.

Reason #3: Easier access to qualified personnel

The shortage of skilled workers has a firm grip on the IT industry. Since almost every company needs to invest in digitalization, well-trained specialists are scarce. Therefore, it is sometimes difficult or impossible to fully staff project teams on-site. In 2019, the unemployment rate among IT professionals in Germany was only 3.2%, compared to 5.9% among all employees.

It's not uncommon for in-house IT specialists to be overloaded, which can have a negative impact on the quality of work in the long run. With good project management, it's no longer a problem to successfully carry out a single project with employees at different locations, whether it's a classic or an agile project.

Reason #4: Similar Culture and Work Attitude

Those who have experience with offshoring and have worked with specialists from India, Pakistan, or other Asian countries, have probably noticed that there are cultural differences. These differences are often only implicit (e.g., messages that are indirectly formulated) or subtle, but they can trigger serious misunderstandings.

For example, some IT professionals from these countries are simply not used to receiving open and honest feedback, especially when their own supervisor is participating in the same video conference. Additionally, the work attitude can sometimes differ significantly, or there may be different views on what quality means.

With nearshoring, cultural differences are significantly lower or practically non-existent, which enables better project success as a result. What applies to culture also applies to regulatory understanding, especially in the banking and financial sector, where it's an important factor.

Resources:

https://www.ey.com/en_gl/ceo/ceo-outlook-global-report

https://top-leader.at/zukunft-digitalisierung/ceo-pulse-survey-betriebe-planen-kostensenkungen-und-investitionsstopps/

https://www.comarch.de/service-und-support/whitepaper-und-webcasts/whitepaper-it-outsourcing/?gclid=EAIaIQobChMIt73s8NbN-gIVEtZ3Ch1hng-MEAAYASAAEgIRSvD_BwE#kontakt

Conclusion:

In summary, software nearshoring is an attractive option for companies looking to outsource their IT services. The benefits include cost savings, increased flexibility, easier access to qualified personnel, and the ability to use a similar culture and work attitude.

Compared to offshoring, communication is easier, and collaboration is often more productive. Nearshoring also offers the possibility of accessing a pool of specialized professionals to fulfill specific requirements. However, companies should carefully consider which option is best suited to their specific needs.

It's also recommended to regularly discuss the latest trends and best practices in the software nearshore sector to ensure that the best solutions are being utilized.