It’s no secret that outsourcing in the IT industry has been growing in popularity in recent years. In fact, revenue in the IT Outsourcing market is projected to reach US$512.50bn in 2024. The reasons why more companies are choosing to outsource their operations include:
– Reduced labor and infrastructure costs that simplify budget management and lower overall operational expenses.
– Access to a wider pool of talent, allowing companies to find specialized expertise not readily available internally.
– Improved scalability to meet project demands quicker and more efficiently.
Within outsourcing, two distinct models stand out: nearshoring vs. offshoring. In this article, we’ll put them both under the lens to see why more companies are choosing this increasingly popular business practice in 2024.
I. Nearshoring Vs. Offshoring
At first glance, the difference may seem evident – offshoring refers to acquiring talent from technological hubs in Asia or Eastern Europe. In contrast, nearshoring refers to hiring professionals from within the same continent as the US, more specifically Latin America. However, the truth is that the differences between these two models are more nuanced than one might initially think. Let’s take a closer look.
– A. Offshoring: A large talent pool but challenging integration process
While offshoring to distant technological hubs was the most popular model for many years, thanks in part to the fact that it allowed companies to reduce rates and recruit specialists for positions in high demand, experience and 2024 Business Trends have shown this has significant drawbacks.
Several factors such as time zone differences, cultural clashes, costs, quality issues, and lack of specialization have contributed to the uptick in popularity of nearshoring staffing solutions over their offshoring counterpart in recent years.
– B. Nearshore software development: The key to acquiring top talent closer than you might think
Historically, nearshoring always referred to acquiring talent from countries geographically near a company’s offices. However, due to how the pandemic made remote work opportunities in the IT industry skyrocket, this definition has changed.
Nowadays, nearshoring is synonymous with closeness in terms of overlapping working hours, cultural alignment, and overcoming the language barrier without sacrificing quality or incurring excessive spending.
II. Crucial Factors Tipping the Scale Toward Nearshoring
– A. Time zone alignment in nearshore staffing: The implications of geographical nearness in software development
To better exemplify the importance of time zone alignment, let’s look at the following hypothetical situation:
Phil works as a Salesforce Architect for a software development company in Dallas, Texas. The company has gone through a restructuring process and most of his team is now working from Warsaw, Poland. Since there’s a 7-hour difference between both cities, when Phil is just starting his day at 9 AM, it’s 4 PM for his team in Warsaw.
Having just a 1-hour overlap in working hours is a recipe for failure. Often, tasks need urgent resolution, and team meetings tend to yield better results when done synchronically, even more so given how Agile methodologies have cemented themselves as the standard in IT. That’s where time zone alignment in outsourcing comes into play.
By hiring talent from countries such as Colombia, Mexico and Brazil (which have a 0-to-3-hour difference with US states like Dallas, Texas) companies can easily close the time zone gap
What’s more, even having these slight working hours differences opens the possibility of extending a company’s service coverage time when working with outsourced partners.
– B. The nearshore advantage: Solving the quality vs cost dichotomy
It’s time to settle this age-old discussion that falsely relates low rates with low quality of work. First, let’s address the quality part of the equation. According to the 2023 Global Skills Report by Coursera, Latin American tech hubs stand out for their abundant pool of proficient professionals in the fields of software development and data science. This is a crucial differentiator given how several new tech skills are going into high demand in 2024.
In terms of cost-efficiency, Latin America IT outsourcing also comes on top. Due to the generally lower cost of living in Latin America compared to the United States, the salary expectations of workers in LATAM are correspondingly lower. To put this into perspective, the average yearly salary of a Web Designer in the US according to Glassdoor is almost 100,000 USD, while the average salary for the same position in Mexico is around 65,000 USD.
These rate differences mean that US businesses can oversee and have full control of project management while saving on wages and still offering fair compensation to their nearshore remote teams in LATAM – a factor that greatly contributes to the cost benefits of nearshoring vs offshoring.
– C. Cultural tapestry: The underestimated asset in nearshore outsourcing
An often-overlooked differentiator is cultural affinity in outsourcing. US companies that work with nearshore LATAM teams tend to share work ethics, business practices, and communication styles.
For instance, EF’s 2023 English Proficiency Index shows that Latin America ranks as one of the top regions for moderate to high proficiency in English. For businesses, this translates into smoother interpersonal communication, boosted productivity, and minimal misunderstanding during collaborative work.
But most importantly in 2024, there’s the matter of constant innovation and continual improvement processes (CIPs) in Digital Transformation. These are areas in which Latin America thrives, so much so that a 2023 Digital Transformation Report from Atlantico referred to LATAM as “The Engine of The World”.
– D. Cybersecurity: Navigating regulatory waters and data protection
The importance of cybersecurity and data protection in outsourcing when operating under varying legal jurisdictions worldwide can’t be overstated, especially when the global average cost of a data breach in 2023 was USD 4.45 million, a 15% increase over 3 years.
Increased distance between the US and offshore teams necessitates a more thorough understanding of the data protection laws governing the chosen locations, which could have potentially weaker security frameworks.
That is not the case in Latin America. Take, for example, the case of Argentina, which, in light of the 2018 GDPR regulation, proposed changes to its Personal Data Protection Act to mirror the EU’s GDPR.
But that’s just the tip of the iceberg. Several Latin American companies hold SOC 2 certifications, ensuring clients that vendors maintain robust internal controls related to security compliance, availability, and processing integrity.
Additionally, globally recognized standards for information security management systems (ISMSs) like ISO 27001 are being increasingly adopted by Latin American IT companies, which shows a strong commitment to implementing best practices for data protection, risk management and incident response.
– E. Closing the talent gap: The effect of 2024’s tech innovation trends
Did you know 64% of tech leaders worldwide express that candidates applying for their IT and tech positions often lack the essential skills or experience and 56% identify a general shortage of candidates as a notable concern?
Then, there’s the matter of keeping up with the most recent technological advancements. World Economic Forum estimates that 50% of all workers will need reskilling by 2025. Thus, nearshoring may rise as companies seek efficient ways to access specialized AI skills necessary for automation and digital transformation. This means securing nearshore software development teams with expertise in AI development, implementation, or maintenance tasks will become a must.
– F. Macroeconomic and political dynamics: How is outsourcing affected?
- US-China Tech War: Escalating tensions could disrupt collaborations between US companies and Eastern Asia outsourcing partners due to potential restrictions or cybersecurity concerns.
- Global Recession Fears: The economic downturn might incentivize companies to explore nearshoring to mitigate payroll costs, even with the risk of potential disruptions or project delays.
- Eastern Europe Conflict: The ongoing war in Ukraine and its geopolitical repercussions can cause interruptions in work with Eastern European outsourced teams due to political unrest, infrastructure damage, or talent availability challenges.
As companies navigate the current landscape of IT outsourcing, the conclusion is clear: nearshore IT talent acquisition in 2024 is not just about reducing costs but about strategically positioning operations for success.
To embark on this journey and hire top tech talent, consider reaching out to an Inclusion Cloud advisor and experience the benefits of nearshore software development firsthand – a pathway to innovation, efficiency, and excellence in the ever-evolving IT industry. For more strategic insights, follow Inclusion Cloud on LinkedIn.