The Case for Nearshore Outsourcing - Page 1

The initial concept of outsourcing proved no panacea. As it turned out, well-negotiated deals didn’t generate the expected 25-to-30 percent cost savings. Unexpected situations drove additional cost; many of them coming from geographies, time zones and cultural issues.

The next wave of outsourcing rose in the Far East, driven by the race to comply with Y2K adjustments. This then drove the emergence of software development and application maintenance companies. These new companies, based primarily in India, also promised large cost savings and resulted in the creation of a new industry segment.

Once again, these companies provided nothing new as they essentially made the same promises as earlier domestic outsourcers, but delivered services from thousands of miles away.

Sourcing — With a Twist

The new trend has returned control of core processes to IT leadership. This has resulted in the abolishment of the monolithic, one-vendor fits all outsourcing model of the '90s and has contributed to the emergence of a multi-sourcing strategy where the enterprise contracts with multiple outsourcing vendors for their respective expertise in a given space.

The industry has now realized it is unrealistic to think one can hand over all of one’s challenges to a third party and expect that automatically all of the problems will go away.

As such, over the last 18-to-24 months we have seen a new and refreshing trend in the marketplace where IT leadership is taking ownership of the delivery process; contracting out only those pieces that lend themselves better to third-party services while retaining control of the strategy and overall execution plan.

As the industry moves towards a multi-sourcing model, the bid process has opened up to specialized outsourcers with a focus on infrastructure, telecommunications, business process, call center and software development and maintenance.

IT exec's also started to look for development and support capabilities close to their business centers, creating a network of suppliers in different geographies and with different technical expertise. This approach, now widely known as the global delivery model, opened the door to competition with the established Indian and traditional onshore providers.

Providers in Latin America and Eastern Europe are proving to be as well trained and cost effective as the Indian, Filipino and Chinese providers but offer a closer-to-home delivery mechanism.

The Case for Nearshore

IT services provided from locations in Latin America and Eastern Europe are generally known as "nearshoring" services. A number of providers build software development, maintenance and support capabilities from these locations.

Although it is difficult to argue against the massive availability of talent and low labor costs in India and other locations in the Far East, there are a number of reasons that make nearshoring a more attractive alternative for many large organizations: