Updated: Jun 29
IN-DEPTH EXPLANATIONS AND ANALYSIS OF THEIR BENEFITS AND RISKS.
Businesses all over the world face lots of challenges during their growth and development, and one of these difficult moments is strongly related with deciding how much financial investments are they willing to put into the development of certain projects.
When faced with this decision, most business owners find the idea of developing an in-house team dedicated to certain projects much more expensive than the company’s current situation can handle.
So they turn to alternatives.
In most cases, the solution is simple: find somebody to do it for you at lower costs. This is how we came to talk today about terms like outsourcing, offshoring, nearshoring and remote teams.
But do we know precisely what every one of these terms mean? Do we know what kind of risks and benefits are assumed by people choosing either one of them? Do we know which one suits best in the context of our company?
I will try to explain every option below.
Outsourcing – what is it?
The outsourcing definition is not written in stone, but its core is simple: you as a company give certain project (or projects) to be completed by a third-party firm (or firms).
Let’s lay down an example: a retail company from UK is hiring a software development company to create, maintain and/or update their app.
Benefits of outsourcing:
No significant long term contract needed. You can just sign a contract for a specific task or project. Of course, if you need long term assistance, that’s fine too.
Flexibility. It gives you the opportunity to change your partners very easy or to work with multiple partners until you find the one suitable for you.
No need to relocate, which is an impossible thing to do when your company operates in a certain geographical region.
Saves you the costs and hassles of hiring in-house professionals, which can turn out to be a really expensive thing to do.
Cut costs by taking advantage of the availability of a much cheaper labor market whilst maintaining the same quality.
Share the risks with the outsource provider. Obviously, your partners would need to assume certain responsibilities for the project you put into their hands, which is a good thing for your investments.
Take advantage of specialized, trained and certified professionals, which means they have the expertise needed to expertly develop your project.
Increased focus on the core of your business. Outsourcing peripheral projects and services can give you the necessary time to improve the core of your business or other parts that might not be working all that smoothly.
Risks you might want to evaluate when considering outsourcing:
Poor communication. More often than not, poor communication is a liability in the relationship between partners. Fortunately, the variety of tools available can help you easily overcome this problem, you just have to address it in a structured way from the beginning .
Hidden costs. Even if outsourcing is still the cheapest solution for companies looking to develop certain projects, you need to be aware of all the costs involved, so you do not end up paying more than initially budgeted.
Lack of deadlines synchronization. It is much easier to control the deadlines when working with an in-house team rather than with a partner half the world away, taking into consideration also the time zones.
Confidentiality. You need to carefully assess what kind of information you’re passing on to the outsourcing partner and discuss upfront an NDA that will prevent them from revealing any sensitive information.
Outsourcing gave birth to concepts like offshoring, nearshoring and remote teams, which are explained below.
Simply put, the term of offshoring is the child of outsourcing. Using the previous example, this means that the retail company from UK would choose a software development company from a completely different geographical location as a trusted partner to develop their app.
There are lots of reasons why companies might decide to do this and, of course, there are many places where companies could go to take advantage of a much cheaper labor market. For example, China, India, Poland or Romania are four of the most popular countries for western companies looking to outsource their software needs.
Advantages of offshoring are not negligible:
Lower costs. It’s as simple as that, whether we’re talking about production costs, research, labor market, cost of living or anything else.
Time zone benefits. This means that companies offshoring their services can take advantage of the time zone and receive round the clock support.
Global talent pool. You can take advantage of skilled professionals able to do the work at the same quality standards as in western countries, but for lower costs.
But what about the risks involved?
Communication barriers. Unless you can find people in other countries that speak your native language fluently, you’re limiting yourselves to mainly English.
Different culture and work habits. Most of the time, your partners will make the effort of adjusting their schedule according to yours, but you too will need to make some adjustments that might not be as simple as you think.
Distance. Thinking about visiting your offshoring partners? That could be pretty hard to do considering the distance, the costs and time spent traveling.
Let’s move on to the next child of outsourcing: nearshoring.
Nearshoring it’s the little brother of offshoring. This term refers to outsourcing your project a little bit closer to you, even though still in another country or region.
Using the previous example, the UK retailer would be using nearshoring contracting if it would work with a software development company from Europe to develop its app, instead of choosing a partner from India or China.
The benefits provided by nearshoring:
Same time zone. Neither you nor your partner don’t need to work overtime or in night shifts in order to synchronize meetings.
Few cultural differences. Being in the same continental region, you and your partner will face fewer problems regarding the cultural and work differences.
Still cost effective. You will still save a lot of money while benefiting from other factors as well.
Proximity. This allows for less expensive and more frequent face-to-face meetings that will most certainly increase the productivity of the collaboration.
Faster problem-solving. Time zone differences will not get in your way when certain urgent problems need attention both from you and your partner.
The disadvantages of nearshoring:
Higher costs than offshoring. It is possible that contracting a nearshore partner will involve higher costs than an offshore partner. However, as you might already know, wages are on the rise in India, China and Philippines, which means that the costs will not differ too much.
Cultural affinity. Even if the language is the same and time zone similar for both parties, there are still some aspects to be considered, such as holidays or other cultural nuances.
Fewer providers. When choosing a nearshoring partner to work with you need to consider the possibility that finding one might be quite hard, simply because there are fewer options on the market.
This term is strongly related to the ones explained above and it’s often mistaken with one or more of them. This is why we need to understand what makes remote teams so special and why it’s not a traditional outsourcing method.
There are actually two types of remote teams.
Firstly, the term could be referring to an in-house team that just works from a different place (other than the HQ of a company), from home or on the field. Examples could be a sales team that works on the field or a support team that’s located someplace different from the development team.
Secondly, and this is the situation where remote team is mistaken for traditional outsourcing, the term is describing a team of professionals working for a certain company, yet is fully dedicated to a specific project owned by an outsourcing company. Also, the team works very closely with their client. In this case the remote team can either be in the same country as the client or in a completely different location.
For better understanding consider the following example:the software development company that develops the app for the UK retailer has a team of professionals working for this project alone and nothing else. This team is in close, daily-based collaboration with the client (the UK retailer), which gives the outsourcing company a lot more control over the project. In this way, the development of the app can be better monitored by both parties.
See the fine line between remote teams and traditional outsourcing? If still not, ask me more on the subject in the comment section and I’ll try to clarify things for you.
The benefits provided by the use of a remote team:
Increase trust between companies. When both the client and provider work closely to one another, trust level increases because they can better understand each other.
Efficient communication. Daily based interactions between teams will eventually improve their communication.
Increase in productivity. Good cooperation between the outsourcing company and the provider are crucial to the success of the project, which will benefit from an increase in productivity.
More control for the client. You can choose the people in your team and you are always aware of the necessary changes. The client is never the last to know who is or not working on the project.
The disadvantages of a remote team:
Partners might not match. Working very closely on a project, both the outsourcing company and the provider might face some challenges due to the cultural affinities, different work processes, personalities or other factors.
Partners might not meet. You need to decide how important is it for you to meet and get to know people you work with, because you might not have the chance if working with a remote team.
But let’s hear it directly from people who had the opportunity to experience working in a remote team with different clients all over the world. I admit, it was easy to get the info, because these guys are my colleagues here at Spyhce
Gabriel Cristian Muj, a Romanian Python Developer, started to work in a remote team five years ago, in close collaboration with clients from USA, Poland, Netherlands and other countries.
He thinks that the secret for a great collaboration in working in a remote team with a client is that everybody has to know the project’s objectives and goals.
When Gabriel worked on a project with a client from the Netherlands he didn’t feel the need to meet them because the description of the project was so detailed and comprehensive that he felt like they discussed it face-to-face.
”It doesn’t bother me that in some cases I never see the other team members, because for me it doesn’t matter if the person is there physically or how he/she looks like. It is more important that the team members to be friendly and breezy”, he says.
Gabriel prompted me that he is not a fan of the formal talks, but he knows that sometimes you have to leave the jokes aside, because not everybody accepts the friendly-style talk.
”The longest project I worked on lasted a year and a half, and after this long period of time I could say that I trusted my colleagues and they trusted me, so we started to have meetings in a non-formal fashion. At the beginning we talked in a daily basis, but after a few months it was enough to catch up in two or three days.”
Andrei Candale, another Romanian Python Developer, works mostly with teams in Netherlands.
He had the chance to meet the team members in Eindhoven, NL and Andrei confessed that for him it’s important to work with people he’s met at least once, rather than not seeing them at all.
”Before I met the team from Netherlands I felt like I had to be more formal, particularly when working with big corporates. For example, when I’m working with people from Phillips I need to get over a lot of protocol. It is easier to demolish these protocols when you are there physically. So I like to communicate face-to-face, because when I am away from them I see a virtual barrier between us.”, he says.
After meeting the colleagues their behavior changed and they all became more friendly and less formal. Andrei feels that they are better connected now and can help each other more in developing a more efficient communication.
One of the most experienced Software Developers here at Spyhce, Mihai Gociu, has worked with clients from China, USA and Netherlands.
Mihai told me the differences between these countries and his first hand experiences.
”First of all, every team I worked with was built on professionalism and they were all well prepared, but they had different behaviors. The US team, for instance, was always optimist and relaxed. They were not at all pushy.
They are disciplined, but in my opinion the most disciplined and formal team was the one from China. They were afraid to assume a leadership role because they have a strict hierarchy. I once faced an uncomfortable situation when a non-tech CEO experienced some problems with the application and he raised his voice in front of the other remote team. At that point, the team members from China respectfully explained the problem, because they are calm and disciplined.
To sum it up, with Chinese team I always talked in a formal way. With the NL and US teams we always had a friendly, informal communication.”, he confessed.
What should you learn from their experience?
Depending on who you choose to work with, you need to be prepared for every type of relationship. As an outsourcing company, it makes sense to choose a partner with a higher culturally affinity, but you never know for sure if the collaboration will be good or bad until you try it.
Every team member has it’s own story, hidden opinions and communication style and only by getting to know them better you can build a close and more effective team.
But people are awesome, so no matter the experience I’m sure you will learn a lot about human behavior.
Main takeaways so far:
Nearshoring, offshoring and remote team concepts derive from outsourcing.
Outsourcing refers to contracting work both from foreign or domestic partners, while offshoring and nearshoring refer to contracting outside the company’s country.
Nearshoring means that you as a company can outsource your projects and needs somewhere quite cheap (cheaper than an in-house team but more expensive than an offshore team) and quite close.
Offshoring means that you (as a company) can outsource your projects or needs somewhere very cheap but very far.
Remote team means that you will work on your project in a very close collaboration with an outside team of professionals. This involves daily based meetings and the need for a good communication.
Europe vs Asia as outsourcing destinations
For most western companies looking for partners in the IT industry the main choices are Asia and Central Europe, with the latter becoming more and more popular, and for good reasons.
Consider my arguments:
IT industry is booming in the Central and Eastern Europe, where you can find more engineering-based countries than in any other part of the world. Romania, for instance, is one of the most fast-growing countries regarding software development.
Asia is currently facing massive competition from Europe from a quality point of view.
Most western companies now choose Europe because of cultural similarities shared by the area and the company’s prospective clients.
A more convenient time zone is something that can be enjoyed by both parties. No more night shifts or overtime work hours.
The proximity makes for faster and cheaper business travels, which have a great role in collaboration development.
Western companies can find in Europe a cultural similarity that can help teams to better understand each other and be more efficiently coordinated.
Countries in Central and Eastern Europe abide by the same data protection legislation as the Western countries, which makes shared information much more secure than in Asia.
You can find more and more IT professionals in Central and Eastern Europe speaking more than just English. We’re talking about languages like Dutch, German, French, Hungarian, Italian, Spanish and more. These skills are becoming more and more important for the western companies looking to extend their operations in multiple countries.
Central and Eastern Europe possess a fast-growing labor market, which started in 2008 and keeps going due to the large number of young professionals trained by technical universities in the region.
Choosing the right partner
So you decided between Asia and Europe, but how do you choose the correct partner? This is a real problem for most of the companies out there, especially for the ones new to the concept of outsourcing.
How do you know who to trust with your project, time and money?
Unfortunately, there’s no such thing as one-for-all answer to this question. But do not despair, because there are a few things that can help you make the best decision. In general, a trustworthy partner should complete several conditions that are important to you.
This means your ideal partner should:
Have experience in projects or services similar to the ones you want to outsource.
Have proven track records with former similar customers.
Have trustworthy references that can give you an idea of the experience other customers like you had with the company.
Have teams of dedicated, qualified and trained professionals able to understand your needs and handle your projects.
Be stable from a financial point of view. Otherwise, you might find yourself alone in the middle of the development process.
Be culturally compatible with you and people from your company. This will make the collaboration so much easier.
Speak your language fluently, so there will be no communication barriers between you.
Possess quality technologies and infrastructure, which will allow him to improve performance and quality of services you receive.
Provide post development support, even if for a certain period of time.
Understand your business objectives and help you achieve them.
It’s your job to establish which ones are most important for you and choose your partner accordingly.
If you’ve made it so far into the article, thank you for your patience. I hope all this information will prove to be useful for you. If you still have questions that remained unanswered, my colleagues and I are just a few clicks away. Ask us via the comment section below or contact us via email or phone and we’ll gladly respond.
After all, we ourselves have a significant experience as outsourcing partners, working with companies from all around the globe and providing different services.