This is a white paper we created for iTexico (www.itexico.com) in January 2017. The idea for the paper was to extol the virtues of nearshore outsourcing and using a nearshore software development firm (namely iTexico) to this end.
Since the advent of offshore outsourcing decades ago, it has been assumed that sending certain kinds of work overseas is a cost-effective way of doing business, given the less-expensive labor in other countries. The digital era has shown that to be true to some degree. Still, outsourcing is not as attractive as it once was for software development. More and more U.S. companies looking to send work to less expensive markets are turning to the nearshore alternative instead.
iTexico, a software development firm based in Austin, Texas, is a cutting-edge technology company that embraces the nearshore model. Their Austin headquarters is complemented by a Silicon Valley office and a wholly-owned software development and delivery center in Guadalajara, Mexico. iTexico has not only discovered the benefits of nearshore outsourcing for their own business, but they have also successfully deployed it to create a software development model that works in the modern, fast-paced and highly competitive world of software development.
Offshore Not Keeping Up
The offshore versus nearshore debate among decision makers usually begins over the question of money. In other words, the assumption is that sending software development work to places such as India and Pakistan can save a company as much as 30-40%. That may be true with things like help desk and call centers, but it’s no longer true for software development. Outsourcing IT work in those markets is becoming more and more expensive.
A November 2015 article published by the Wall Street Journal detailed how IT costs in India are escalating to the point of no longer being affordable by U.S. companies. Author Newley Purnell cited several contributing factors, but most of the blame for increased IT costs was laid at the feet of an acute talent shortage in India. According to Purnell’s data, Indian IT start-ups flush with Western cash have been quickly absorbing a limited pool of available talent and driving up wages as a result.
Exacerbating the problem is the reality that domestic software products are not being developed for the masses in many Eastern countries. Instead, software development is driven by the West – particularly the U.S. and key European markets. The lack of demand for domestic software removes much of the incentive software development firms have to innovate and take risks. The sum total of these two issues is this: offshore outsourcing for software development is not keeping up with the demands of Western companies.
The Nearshore Solution
The need to outsource software development will not change just because traditional Eastern partners are not keeping up. Therefore, Western companies in need of software will either have to hire their own in-house teams, contract with U.S.-based partners, or look for a nearshore solution instead. The nearshore solution is quickly emerging as the best option.
Nearshore outsourcing is to software development what call center and help desk outsourcing were years ago. It is a means of utilizing technology and talent resources to create innovative software products at an affordable cost. Outsourcing to nearshore partners offers numerous advantages that should be obvious:
- Labor Cost Reductions – Outsourcing software development to India maybe becoming more expensive thanks to inflation that peaked just above 6% in Q3 2016. With inflation expected to run at about 3% in for 2017, going nearshore is still a way to significantly reduce costs through lower wages. Mexico is a great example. There is no shortage of highly skilled IT workers in Mexico ready and willing to get to work. Mexican wages are more affordable than U.S. wages.
- Travel Cost Reductions – Outsourcing still requires travel from time to time. The nearshore model significantly reduces travel time and cost, thanks to the relative proximity of companies and their nearshore development teams.
- Similar Cultures – One of the most important but least talked about problems related to offshore software development outsourcing is the significant differences between Western and Eastern cultures. Those cultural differences often lead to program delays, misunderstandings, and so on. Nearshore partners usually have a strong cultural affinity for the U.S. Any cultural differences that do exist tend to be minor.
- Language Skills – Even though most Indians speak English to some degree, American and Indian English are different enough that there are genuine communication problems between developers and engineers in both countries. The English spoken in Mexico is very similar to U.S. English due to the heavy export of American call centers south of the border. A significant demand for English speakers has led to increased language skills in Mexico, ultimately making communication more effective.
- Faster Communication – Time zones can inhibit effective communication for partners on opposite sides of the world. Thus, slow communication leads to slow projects. Because nearshore partners are much closer – often in the same time zone or just one or two time zones removed – communication tends to be faster.
- Skilled Workforce – Countries such as Mexico and Brazil are churning out skilled IT workers ready to hit the ground running. Furthermore, their IT workforce tends to be young and enthusiastic. Where software developers in the East might be mired in an environment that lacks innovation and motivation, their nearshore counterparts in the West are on the cutting edge, and excited to be so.
iTexico and Nearshore Outsourcing
iTexico makes extensive use of nearshore outsourcing by way of its Mexican software development and delivery center. The Mexican office delivers the same high quality that customers have come to expect over the years. Furthermore, the strength of the company is such that they have experienced 500% growth since 2011. They currently partner with an impressive list of big-name companies, including Microsoft and IBM.
iTexico services include nearshore outsourcing, full stack development, and mobile development for both Android and iOS. In the full stack arena, company engineers use the latest technologies and methodologies including Java, .NET, Angular.JS, Node.JS, and StrongLoop.
Companies looking specifically for an affordable nearshore solution should consider iTexico and its Extended Teams as a Service (ETaaS) model. ETaaS takes the concept of software as a service (SaaS) and applies it to extended software development teams. They can arrange for a nearshore development team to work with your company to develop the exact software you need. The team is your team, driven by your goals and objectives.
The need for outsourced software development is not diminishing. If anything, it is growing in an ever-expanding technology space where competition continues to drive innovation and product development. However, offshore outsourcing is no longer keeping up with either quality or cost. Nearshore outsourcing is the answer.
By partnering with a nearshore software development firm, companies get the high-quality software development they need at a more affordable price. iTexico is meeting the nearshore outsourcing needs of clients by offering effective and competitive solutions without the need to send work to offshore partners in the East.
- Wall Street Journal – http://blogs.wsj.com/indiarealtime/2015/11/09/indias-talent-shortage-is-driving-up-start-up-salaries/
- Trading Economics – http://www.tradingeconomics.com/india/inflation-cpi/forecast
- Marketplace – https://www.marketplace.org/2015/03/10/world/returnees-mexico-english-lucrative-skill