Six Ways to Decide Between Offshoring and Onshoring for Your Next Project
Last week, I wrote about how global software development outsourcing is becoming more practical for SMBs, and how Accelerance, an outsourcing services provider in Redwood City, Calif., is helping to drive that change. Equally worthy of discussion is the changing nature of the marketplace itself, as new hotbeds of software development activity emerge around the world—and in the process, help build trusting relationships between people of different countries.
The latter topic was the focus of the second part of my recent interview with Accelerance CEO Steve Mezak, and the company’s president, Andy Hilliard. Mezak is the author of the 2006 book, “Software Without Borders,” so I opened this part of the discussion by asking Mezak what has changed in the world of software development outsourcing in the 10 years since his book was published. Mezak said he and Hilliard are aiming to release a second edition of the book next near, because a lot has certainly changed:
I’d say the biggest change has been in the number of additional locations that have come onto the radar—unusual locations that have proven themselves. Armenia is an example; other countries in Latin America, like Bolivia and Venezuela, have been added. So those were not covered by the book—I knew as soon as I wrote it that it would be out of date. Hopefully, our website and blogs have kept people informed.
The other big thing that has changed is the general belief that agile software development methodologies are the main way to go. In the book, I was a little bit on the fence about Waterfall and the Rational Unified Process, which were popular back then, to some extent. But now I’d say it’s pretty much all agile all the time. And that’s another reason why American companies are shying away from India—it’s so difficult to do agile development when you’re 12 time zones away, and you may have some culturally inhibitive communication issues, as well.
Hilliard chimed in with another key change that has taken place over the last 10 years:
Our U.S. culture and language have penetrated higher-educated developers in so many other countries, to the point where they understand and align with our American customers a lot better. So it opens up new markets for us. The interesting thing about a lot of these markets is that they’re typically considered second- or third-tier by virtue of their size or familiarity to the general outsourcing public. But a lot of these locations have great universities, and English-speaking people who have consumed a lot of American culture for quite a while, and who are actively consuming applications developed and made for American audiences.
These are populations that are under-leveraged, so midmarket companies can get the same benefits as the Wells Fargos and Bank of Americas and the Nestles of the world by going to these smaller, under-fished markets, and they’re still getting great pricing because of supply and demand in those markets not being like they are in India.
Hilliard detailed the geographic distribution of Accelerance’s global network of software development partners, and in the process illustrated the change that’s taking place:
In our heavily onsite-vetted network, we currently have 50 partners in 30 countries, divided between Latin America, Eastern Europe, and Asia. Historically, and even today, based on the work that India has done, people think of India for software development. But interestingly enough, we do about 50 percent of our work in Latin America, about 30 percent in Eastern Europe, and about 20 percent in Asia.
India made its mark not only because they started far before everyone else, and they have this critical mass of resources, but because of their ability to scale—they’ve made huge impressions on the Fortune 500 in their ability to have thousands of people in one location. Since our target audience is generally mid-market companies, we typically have teams of five to 100, not thousands. So it’s much more viable to find other countries and partners with attributes that are more important to them, like time-zone and cultural alignment or proximity.
So that’s why a lot of our clients are selecting places like Eastern Europe and Latin America, where it’s easier for them to do business. It’s one thing for a big company like Bank of America to put their own office in Chennai, India, and have a couple of dozen Bank of America people live over there, managing thousands of resources. But when you’re talking about smaller-sized teams, the proximity and cultural alignment become bigger factors.
Interestingly, Hilliard said India constitutes only about one-third of that 20 percent chunk in Asia:
India is the obvious choice, but our clients are looking for something that’s unique and valuable, above and beyond what they’ve already heard. They know that India is tried and true, but they also know that it’s been heavily fished, and over-leveraged. They also know there’s a high inflation rate, and the demand for resources there is so great. We like to say our partners are big enough to scale, but small enough to care. And if they can’t get that feeling of small enough to care, or get teams that are consistently dedicated, going to India is a challenge. There are so many worldwide firms that are constantly demanding these resources, it’s hard to get that continuity of relationship.
Accelerance is able to offer onshore, nearshore, and offshore software development options to its clients. Mezak explained the factors that determine which of those options is most suitable:
American clients are looking to outsource locally, within the U.S., when there are issues of strict intellectual property or privacy concerns, and cost just isn’t an issue. There’s a movement you may have heard of called rural outsourcing—outsourcing companies are being located in less obvious locations. If you don’t have those strict requirements for citizenship, then nearshore is the next most popular way to go because of the time zone overlap to facilitate agile development—that’s been huge.
The other benefit for Americans in going to Latin America is the cultural affinity that we mentioned. And then you go offshore when you want a more extended workday. Going to Eastern Europe, you have some overlap in the day with the U.S., and you can schedule time during normal work hours to have the daily stand-up or check-in meetings as necessary. But one thing we strongly recommend—one of the secrets of success of high-performance software engineering teams—is great communication. You have to visit at least once per quarter—having people going one way or the other—and proximity makes that easier.
I asked Mezak if Canada is a nearshore outsourcing destination for U.S. clients. He indicated that it’s not at the moment, but that may change:
We’ve looked at Canada over the years—it was popular about 10 years ago, and the Canadian federal and provincial governments have tax breaks for companies that are doing R&D there. So I think outsourcing companies could take advantage of that. Right now, because of the exchange rate, it’s practical again to outsource to Canada. But there aren’t a lot of companies, and exchange rates go up and down. So our American clients are more interested in going a little further nearshore. But it’s something we continue to look at.
Hilliard added that the situation with respect to Canada is similar to that of some other countries, including Egypt:
We were looking at Egypt in 2010, before all hell broke loose, and it just dropped down on our priority list. Canada had a very favorable position against the dollar recently. So when something like this happens, when the dollar starts to become stronger against currencies, then countries will come into favor, and we’ll start to look at them seriously. Canada has boiled up to the top, and we are starting to look at possible partners there.
The same with Egypt—we like to try to be first movers in regions that are looking to revitalize their economy. As you can imagine, places like Egypt, or even the Eastern Bloc countries before the wall fell down, had huge middle classes of well-educated professionals. But they were inaccessible, and these people end up being taxi drivers and cooks and stuff. So when a country then becomes viable in the global marketplace, and their pricing is attractive, that’s when you want to get in there and discover all of this unused talent.
Hilliard wrapped up the conversation with an anecdote, and a reminder, that I found immensely uplifting:
We have a partner in Palestine. I asked him where most of his business comes from, and he said 70 percent of his business comes from Israel. I’ve asked that question of partners in other regions where you’d think the [parties] wouldn’t have good relationships, and the universal answer is that good business solves the other problems and issues. It transcends the political fighting that only happens in the halls of politics.
I was a Peace Corps volunteer, and we had three goals, two of which were not job-related: One was to share your culture with another, and have them appreciate where you come from; and then to learn their culture, and to bring it back and share it with people here. Breaking down those stereotypes, and helping people have successful relationships that go beyond their work, and enrich and fulfill them as professionals, I think is a great thing that we do.
A contributing writer on IT management and career topics with IT Business Edge since 2009, Don Tennant began his technology journalism career in 1990 in Hong Kong, where he served as editor of the Hong Kong edition of Computerworld. After returning to the U.S. in 2000, he became Editor in Chief of the U.S. edition of Computerworld, and later assumed the editorial directorship of Computerworld and InfoWorld. Don was presented with the 2007 Timothy White Award for Editorial Integrity by American Business Media, and he is a recipient of the Jesse H. Neal National Business Journalism Award for editorial excellence in news coverage. Follow him on Twitter @dontennant.
