Offshore Vs Nearshore Software Development Provider: Whom to Choose?

IT Managers across the states are re thinking their software development strategy, and aiming to replace their offshore software development firms with nearshoring ones.

The reason behind this growing trend, are the advantages of nearshore software development (Latin America) over offshore (i.e. India and East Europe) like the timezone proximity which enables real time communication and agile software development with nearshore teams, and thus better project control for the IT manager. Also the geographical proximity allows the IT managers to go down and visit the team for a period of time within the year, either for critical paths within software development process, or just to improve the nearshore team compromise and commitment with the cause.
 

The fact that cost gap between nearshore and offshore software development firms continues to close especially due to inflation and attrition differences is also contributing to the decision of replacing offshore software development firms.Nearshore development costs still fall between the costs of local development anoffshore development.

Declining service levels and difficulty understanding Indian accents are issues that buyers have also expressed concern over during 2011 about offshore software development.

Why to expect a growing of nearshore trend: A lot of the growth in the US is coming from SMEs that find it easier to work with similar providers in Latin American and for example, Silicon Valley startups are trusting their software development for nearshore development firms located in Costa Rica, Mexico, Chile or Uruguay, and more US companies are investigating what options Latin America can provide.

Additionally, there has been an increase in the number of Latin American companies that are opening US offices, or hiring a US marketing and sales representative.

Deloitte’s 2011 Global Shared Services research which was reviewed at Shared Services and Outsourcing Week, called Latin America the new frontier and said that Latin America was the second most popular destination for new centers, and found that companies establishing new facilities in Latin America were likely to be following the growth of Latin markets for their companies’ products.

So, what is the offshore team still useful for when it comes to offshore software development? The answer is non-critical path waterfall development: waterfall because the time difference precludes agile development; non-critical path because delays in communication add unpredictability which can upset the timeline.

IT managers looking to manage their software development projects using agile processes will continue to try with nearshore firms.

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2012hottest outsourcing destinations in Latin America

Latin America outsourcing is gaining momentum and a growing list of IT managers across the states are planningto replace their offshore software outsourcing providers with nearshore ones (Latin America) mainly because the timezone issue preventing IT Managers to control projects using agile methodologies, and the fact that cost gap between nearshore and offshore software development firms continues to close especially due to inflation and attrition differences.

Countries in Latin America and in particular South American ones are looking to position as preferred IT services outsourcing destinations and take benefit from such trend. Client organizations in neighboring Spanish-speaking countries may find additional advantages, such as proximity, as well as language and cultural compatibility, in outsourcing to Latin America.

So which country an organization should choose? What factors are required for consideration? A decision maker could consider looking at Gartner reports for outsourcing, which analyze suitability for offshore outsourcing based on 10 criteria: language, government support, labor pool, infrastructure, educational system, cost, political and economic environment, cultural compatibility, global and legal maturity, and data and intellectual property security and privacy.

Countries in Latin America share the same benefits about nearshoreoutsourcing: timezone and geographical proximity. However a few of them are showing up as better outsourcing choices for those organizations looking to outsource to a South American software development firm (or setup their own captive centers), and they try to tackle some of the key factors affecting decision making about choosing outsourcing.

Within South America, Chile and Uruguay are on top of outsourcing destination lists because even when its population is below giants as Argentina and Brazil, and this is some big limitation for big volume outsourcing business, they are ranking great about some of the key outsourcing enablers: 

•    both countries achieved a continuous economic growth over the past few years, remarkable among competition in Latin America

•    reached a world-recognized political stability, in contrast with Argentinean or Colombia reality, and most of Latin Americancountries

•    Language is not such barrier like in Brazil, one of major competitor in South America for volume outsourcing

•    Government is pushing hard and supporting growth of IT companies, by enabling IT parks, taxes redemption, FTAs, and initiatives such as the One Laptop per Child initiative developed by Uruguayan government: By November 2010, the government had distributed 380,000 laptops, trained 18,000 teachers, created 280 free Wi-Fi areas in Montevideo and had given 220,000 families their first computer, unique initiative in Latin America

•    educated workforce with a high literacy rate, among the highest in Latin America

•    Outstanding technology infrastructure (According to "The Global Competitiveness Report, 2010 to 2011," Uruguay is ranked No. 53 in infrastructure globally, ranking above other Latin American countries, such as Brazil and Argentina.

UruIT is the leading provider of nearshoring to South America outsourcing and Latin America nearshore outsourcing companies. Microsoft certified nearshore outsourcing.