Does Nearshore Live Up to the Hype?

Successful Outsourcing

Always the “Next Big Thing”?• Nearshoring in the Americas has a long history in the world of

software development– Outsourcing development to countries where

• The work day overlaps broadly• Business cultures are similar or well understood• Language barriers are minimal• Travel time and costs are relatively low• Trade agreements are beneficial• Infrastructure and talent are strong

• Analysts have listed nearshoring in the Americas as a key indicator of outsourcing success in the region for over a decade– So, the question is: Does nearshoring live up to the hype? Is anyone

finding success with nearshore in their projects?

It Depends• Not a panacea

– Cannot fill the needs for the lowest cost resources on a simple hourly basis. There are always cheaper resources somewhere.

– However, if Total Cost of Engagement (TCE) is taken into account across a larger project – even the cheapest global rates for a similar skill-level could end up costing more

It Depends• The rise in the cost of living and wages

in top nearshoring locations like Mexico, Brazil, Costa Rica and Argentina have reduced the TCE advantage somewhat.

• While global oil prices have hit the GDPs of many leading countries in the region, tech sectors have continued strong growth.

• Compound annual growth rate for outsourced IT services in Latin America projected to grow between 8 to 11% through 2019.

• Matches the growth of IT services globally (10%) with the US as the largest buyer of outsourcing services at 66%

On the Basis of Growth & SalesIt Works!

• Steady growth in both solutions and contracts show nearshore is a success as a strategy– Mexico is rated as 4th globally as an outsourcing

location and the most attractive in Latin America by far• “The nature of work has changed from being very

transactional and labor-arbitrage focused to becoming more of a collaborative partnership between colleagues in different countries” – Johan Gott, senior manager at A.T. Kearney

• The move to more collaborative working environments in software development is fostered by the advantages of nearshore relationships between teams

So – Bottom Line

• If your project requires direct collaboration and interaction between members of the team, nearshoring is being widely accepted

• If you are simply looking for a cost advantage, nearshoring may not be the best answer– But, agile and DevOps are used widely throughout the

software development industry. Nearshore and agile/DevOps are accepted as a strong solution for the continuous deployment situations that are becoming standard.

What is Driving Nearshore?

• The continued acceptance of agile as the standard methodology for software development – Can only deliver value in a highly collaborative environment with a bias to

continuous improvement of assets over their lifecycle• Improvement in the quality and size of Latin American skills pool

– Asia-Pacific still leads in total contacts– But, when outsourced projects are high-value & strategic, they tend to go

to nearshore• The growth of DevOps & flattening silos within deployment

pipelines– Increases need for highly collaborative, cross-functional teams– Resources of this level only exist in regions with strong, experienced

vendors and dedicated teams

What is Driving Nearshore?• Lowered expectations for STEM

graduates relative to the need in the US– Debated, but real enough to drive

organizations to build nearshore partnerships and capabilities

• Security & geopolitical risk– As risk rises globally, closer, better-

understood situations are considered more positively

– Increased tourism and understanding throughout the Americas

– Longstanding trade agreements (NAFTA) and supply chains in Latin America also contribute

• Ongoing and increasing investments in education, infrastructure, & business throughout the region– Language and cultural

barriers lessened by globalization

Not All Vendors, All Projects• Nearshore has been shown to be

a strong solution– New vendors to the field, limited

offerings, may not provide all the services and skill levels required

– Some vendors focus on verticals or types of offerings. Check that their focus matches yours.

• If you are just looking for a low-cost solution for a simple project, nearshore may not be a good fit– Although many buyers do start

relationships with smaller, less-strategic projects to test the waters

• Seeing the team, where they work, their operations, environment can clear up misconceptions

Nearshore Has Come of Age

• Over the last decade, nearshoring in Latin America, and Mexico specifically, has proven its worth– Virtually all the global leaders in outsourcing have

centers and staff in Latin America with a wide range of offerings

– Many vendors have offices in both the US and their home countries

If you have a project that could benefit from a nearshore approach, Scio is ready to help. We have offices in Austin, Texas and our development center is in Morelia, Mexico. We have over 12 years of experience in nearshoring, using agile practices for our clients in North America. Please contact us for more information.