According to the report IT Outsourcing in Europe Market Overview 2023-2027, the outsourcing market is projected to grow at a Compound Annual Growth Rate (CAGR) of 5% meaning that a substantial increase in market growth is expected. If we look at the global market, it is noticeable that growth is driven by different factors in different areas. The European market is growing due to the readiness to amplify advanced technologies and the presence of numerous global IT companies. On the other side, there are government policies in countries, like in the case of Vietnam.
Understanding the Outsourcing Landscape
Onshore, nearshore, or offshore are just names for outsourcing cooperation models based on location criteria that count on how far off the client is from the service provider.
Depending on your location, cooperation can be named differently. That's why this blog post is written from the perspective of an outsourcing software development company that has more than 300 successful projects for clients worldwide, meaning that for some clients we are onshore, while for others we are nearshore and offshore partner.
It is believed that the main reason for outsourcing is cost optimization. The second most common is access to skilled professionals, scalability and flexibility.
But the bottom line is that depends on the client’s business model and needs. While there are some companies that have a policy that some percentage of development has to be outsourced, there are some companies that don’t trust outsourcing at all.
Nevertheless, the existence of many successful software development outsourcing companies means that these business models have their purpose and sense. The client itself have to know what they want from an on/near/offshore partner.
Price vs Value
The primary goal of outsourcing cooperation should be processes optimization, better performance and growth. All other reasons for outsourcing are just a measure for mentioned goals.
If we are talking about cost, it is common to find that between the three outsourcing models, onshore is the most expensive. But if we enter into the equation other important factors like local data security measurements or data privacy regulations, or maybe the need for physical presence while developing software that must be connected to physical equipment, then price isn’t the elimination factor. In sense of cost, another extreme is offshore, known as the cheapest outsourcing model. Despite different time-zones and cultural differences offshore model is good fit for projects with repetitive tasks, less strategic projects like maintenance, or project that are not based on Agile methodology, which means that this cooperation model will not directly help companies achieve higher business goals.
For projects in which constant and quality communication is crucial, together with familiarity with local culture or laws, the only logical model of cooperation is the nearshore model. For companies whose core business isn’t development, it is more natural to have an onshore partner for software development not just because of the quality of the communication, but also because of constant bonding and need for deeper understanding.
Foundations for Thriving Outsourcing
Despite the cooperation model, the reasons for unsuccessful outsourcing cooperation aren’t merely distance-related. These factors are something we strongly advise potential clients to carefully consider.
First, make sure that the outsourcing partner is familiar with your industry. This is very important, because a partner with proven expertise indicates they are well-versed in industry specifics and have successfully addressed similar issues for other companies. Familiarity with industry regulations and trends enables smoother collaboration and ensures standard compliance. Moreover, by understanding the client’s industry, the partner can easier anticipate challenges and offer tailored solutions.
Second, interpersonal interactions. In outsourcing, it is normal that at the beginning of cooperation, the client’s personnel may experience feelings of discomfort or defensiveness. Raw emotions are normal in business, but the way they are managed is also vital for business success. So, when looking for an outsourcing partner, whether it is onshore, nearshore, or offshore, be sure that the partner's employees are skilled at navigating these emotional challenges and providing exceptional customer service. Usually, there are trainings on how to effectively handle interpersonal interactions and manage time-consuming tasks, while fostering strong client relationships.
Third, the partner's internal (dis)organization. The internal organization plays a vital role in the success of outsourcing partnerships as disorganization can lead to widespread issues towards clients. At the first meetings, it is evident whether everyone is well trained and whether there are rules and procedures for daily tasks. Keep this in mind, if you haven’t done it till now.
Conclusion
The essence of successful software development outsourcing cooperations isn’t to provide professional service you need, whether it is support for development, specific technology knowledge, testing, debugging, deployment, modernization or maintenance. The true value lies in the quality of collaboration. It’s not about price or distance, these are relative concepts. What is expensive and distant to one, may be cheap and close to another.
It is about the quality of the partnership and the fact that you can truly benefit from the partnership and achieve your high business goals more easily.
If you would like to know if we are the right fit for you, just reach out to us.
