‘If you deprive yourself of outsourcing and your competitors do not, you’re putting yourself out of business’
Lee Kuan Yew, founding father of modern Singapore.
Well, now that you got a second to think about that, let’s discuss something a lot of companies fail to consider or even mention as a possibility when deciding to outsources specific services – the ‘dark side’ of outsourcing.
In the past decade, companies have increasingly grabbed the opportunity to lower production and development prices by outsourcing their services to third-party providers. But, outsourcing is nothing new, it has always existed. Only now, the main accent has been put on outsourcing software development to companies that have the necessary know-how to complete a job, at a significantly lower costs than completing it in-house.
Different types of outsourcing
Outsourcing comes in two main forms, offshoring and nearshoring. Both types refer to hiring a third-party to complete a project, and naturally, they offer very similar benefits, but are have slightly different drawbacks.
The main advantage we get from any type of outsourcing is the ability to lower costs, including, eliminating the costs and hassle of hiring in-house professionals. Instead you can use the services of specialized, trained and certified professionals, at lower hourly rates.
It also provides flexibility because you will not be entering into significant long-term contracts, but can work on a per-project basis. No need to relocate. You will share the risks with the outsource provider, since they will have to take certain responsibilities related to project delivery and completion. But most importantly, you will have more time to focus on developing your core business.
As good as it sounds at first, there are also the difficulties associated with outsourcing. For one, you can hit a communication problem due to language barriers, miscommunication or time zone differences. Luckily, there are many tools that can help you overcome the problem, but you have to establish this from the beginning. It can have hidden and additional costs you may not have predicted or calculated initially. Working with a remote team can also reflect on lack of deadlines synchronization due to time zone differences/working hours and public holiday. And lastly, you need to be careful which information you share with your outsourcing partner. To ensure confidentiality will not be breached, you should have your partners sign an NDA that will prevent them from revealing any sensitive information.
Offshore outsourcing refers to working with a company in a completely different geographical region. Meaning, a retail company from USA would choose a software development company from China, India or even Ukraine, as a trusted partner to develop their website. The main reason why most companies choose offshoring is the unbeatably low cost. But let’s explore the advantages and disadvantages of offshoring.
Advantages of offshoring are prominent:
- Lower costs: The main outsourcing driver – low hourly rates – is very evident in offshoring. The hourly rate of developers from countries such as India, China, and countries in the same region, can go as low as $20.
- Time zone benefits: When remote teams work in a different time zone, you can rest assured there will be round-the-clock customer and technical support teams that make sure your (website) is working properly.
- Global talent pool: You will be tapping in a much bigger talent pool. Chances are, you will find skilled professionals who will do the work at the same quality standards as in western countries, but for a fraction of the cost.
But the disadvantages can have you reconsider your decision:
- Communication barriers: you will be forced to work with people who either speak your native language on a basic level or not at all, so you’ll have to communicate either with a handful of individuals who may not be fluent, or use English and hope there won’t be (many) misunderstandings. Trust me, it not only drains your energy if you try to understand an exotic interpretation of the english language in a skype meeting. You’ll never be sure if he or she really understood what you want to achieve.
- Different culture and work habits: even though offshoring companies usually try to adjust their schedule to yours, they will have different national and religious holidays that they want to observe, a different approach to problem solving, and different work habits in general. So adjusting will have to be two-sided and not so simple.
- Time zone difference: While different time zones are an advantage when it comes to proving technical support, if your offshore team is unable to respond right away, especially in critical and time-sensitive situations, your business might get hurt.
- Incomplete or incorrectly finished project: Another serious problem that may arise in offshoring are the additional expenses resulting from the delivery of an incomplete or malfunctioning product. The reasons for this can be manyfold, but the real problem is when the partner is unwilling to complete the job and you find yourself wondering how your legal prospects are when you try to enforce a contract in a country like Pakistan or India. If instead you resort to fixing or redoing the faulty software, this will amount to considerable additional costs.
- Distance: Getting to know your partners is important. Visiting them and meeting the team you work with is also very beneficial. But, when offshoring, doing that can be very costly and time-consuming.
Nearshore outsourcing refers to hiring a company a little bit closer, even though still in another country or region. Now, the retail company from Germany would outsource their software development project to another country in Europe, for example Poland, Hungary or Bulgaria. So, what are the different advantages and disadvantages?
Some advantages provided by nearshoring are:
- Same time zone: Hiring a partner from a near-by country means there will be no time zone difference, or a very small one. This means you will have the same or very similar working hours, so adjusting work hours and schedules, and synchronizing meetings will be a lot easier.
- Hardly any cultural differences: Your nearshore team will most likely have a (slightly) different culture, but nothing drastic. Additionally, staying in the same continent (Europe), you will share the same general laws and regulation, so you won’t have to worry about legal matters. Also, you’d have fewer problems regarding work habits, development methodology, project management, and general (working) culture.
- Cost-effective: Yes, nearshoring is more expensive than offshoring. But, you get highly-skilled, highly trained and educated staff, from a neighbouring county. Developers’ hourly rates would be higher, but they’d be delivering exceptional quality, and as they regularly work with companies in your market and language, it will give you a head start with any project.
- Proximity: Unlike offshoring, when nearshoring you can visit your partners and have face-to-face meetings more frequently. Getting to know each other personally and working together in the same room will certainly positively influence productivity. It will take less travel time, and it will be cheaper. In fact, you can easily have both teams visit each other.
- Faster problem solving: When your partners are in the same time zone, you will share the same working hours. So if you face an obstacle, you will also be able to communicate with your partners right away. And get to the bottom of the problem without having to wait a whole business day to get an answer.
But there are still some disadvantages you should consider:
- Higher costs than offshoring: Nothing beats the low price of offshoring, that’s a fact. But, think about the problems that may arise as a result of miscommunication and untimely responses, and the cost to fix any resulting problems. Perhaps higher hourly rates are not such a terrible disadvantage.
- Cultural affinity: While time zone and working hours might be the same, there will still be certain cultural differences, such as holiday and other cultural nuances.
- Fewer providers: Choosing a nearshore partner might be more difficult since there will be fewer companies to choose from. But, this is also good cause instead of testing your luck and picking a random company, it will be easier to research the companies, get feedback from their associates and make an informed decision.
What type of outsourcing is right for me?
When you are deciding between a nearshore or offshore web development partner, there are a number of factors you need to consider: culture and communication, development methodology, technologies they specialize in and different models of project management. Having a clear vision of the type of website you need to build and the goals you are pursuing can help you identify the perfect outsourcing partner.
Both models have pros and cons for both parties in the process. It is essential you understand the type and quality of service you can receive and the constraints that each model has so you can choose the outsourcing model that allows you to produce the results you are looking for.
Regional outsourcing in your home country, in neighbouring countries or in the same time zone though, tends to be more accessible and greatly reduces the risks related to outsourcing. There a fewer or no language barriers and differences in working hours. Nearshoring outsourcing also provides a better transparency and a good cultural fit, two essential aspects of establishing a productive outsourcing relationship and avoiding delays in project delivery and problems with communication.
To help you decide, we prepared a list of questions you might wish to address. Then weigh in the pros and cons. But before you make a final decision, speak with the actual team that will perform the work for you before you hire them. You need to know who’ll be working for you and you both need to feel comfortable working together.