There are several ways for companies to seek top-tier talent.
In recent years, a key approach to consider was the rise of remote work.
One of the key advantages of remote work was the possibility of contacting people beyond office-related physical locations.
Within this category, nearshoring locations are often closer to businesses’ original headquarters.
Contrariwise, outsourcing also includes hiring within farther areas.
In this article, we’ll address both areas and their specific relation with the Software Development and IT fields.
Knowing its differences and strengths can benefit your strategy. Let's go!
Value vs Cost in Business
Before unfolding the main topic, we need to discuss two concepts: cost and value.
In commercial transactions, buyers and sellers often exchange products for services and vice-versa.
What’s more, these exchanges include not only physical items but also the labor force.
While the cost involves the monetary agreement between parties, the value has roots in the quality. The value is the extra worth that comes with the cost.
The cost of a product is the total amount of its input expenses and anything needed for its production. Its definition implies a financial bet on achieving future benefits.
Yet, businesses have to ponder both fixed and variable costs.
Fixed costs are independent of volume and they lie more on time than on quantity produced.
In contrast, variable costs depend on volume changes, like raw materials and production supplies. Variable costs are subject to modifications according to business goals.
On the other hand, value describes the product or service’s benefits. What’s more, it's the final user who decides the worth of these benefits.
Value is also linked to the product’s marketplace. Each firm presents its value within its industry and its competitors.
Unlike costs, value is more unmeasurable. First, because of the final users and their specific preferences may have.
Also, it’s subjected to companies, markets and competitors.
Let's say you're working on a mobile app for students to organize study topics before a test.
Your app may lose usage after test season. However, this doesn't mean it has lost its value.
In essence, the value is the worth users perceive from the final product in a specific period.
These concepts go hand in hand when evaluating any business operations and exceed buyers and sellers.
These ideas also include final users or customers because they ultimately define a product's worthiness.
But what is the relation between cost vs value and the outsourcing approach?
What is Outsourcing?
What do you mean by outsourcing?
To summarize, outsourcing involves hiring external suppliers to execute specific activities.
While outsourcing provides flexibility, it also highlights priorities within business operations.
Likewise, it focuses on achieving good leveling while keeping strategic positions.
And in demanding markets and environments, this flexibility helps reduce costs.
As a result, it allows companies to save energy, time and money.
Outsourcing Strategy
While outsourcing tasks can save money, it does not make sense without a business purpose. That’s why it's vital to avoid outsourcing arbitrarily.
Analyzing the final goals is recommended as the first step in considering outsourcing.
If not, it can lead to inaccurate agreements or incomplete contracts.
These agreements need great rigor to avoid misunderstandings that can lead to failure.
It’s key to ensure a mutual understanding of relationships’ what, how, and why work. These mutual obligations also must always be well-documented.
Many big-name companies, such as Google, Facebook, Nike and Coca-Cola, outsource their operations.
These outsourcing services often involve IT providers, app development teams and analytical consultants.
Yet, in companies that offer physical products, outsourcing encompasses manufacturing and retailing.
In these transfers of businesses, the common points often lie in both parties being nearby countries.
Some benefits of this exchange are often based on proximity, whether geographical, cultural or historical linkages.
Pros of Outsourcing
- Costs: As outsourcing involves moving operations to external parties, it can save costs in infrastructure or technology. As a result, businesses can place greater emphasis on strategic resource allocation.
- Flexibility: Outsourcing can lead to more flexibility in recruiting policies for both hard and soft skills. As industries have fluctuating demands, external contractors can work on specific periods to meet seasonal or cyclical demands.
- Innovation: Outsourcing can be key to channeling innovation, as it brings together worldwide talent and perspectives. This feature applies to tech globalization and specific knowledge.
Cons of Outsourcing
- Belonging: Since outsourced employees respond to agencies instead of final businesses, they can be unaware of practices that in-house members master.
- Instability: Often, outsourcing projects have specific deadlines in mind, making consultants uncertain about their future. This con can lead to quality losses and turnovers over time.
- Communications: With no strict procedures, communications can suffer lapses in outsourcing partnerships. The longer the outsourced response takes, the more services get affected.
What is Nearshoring?
Within outsourcing, the key difference of nearshoring is proximity.
Here, both parties pursue benefits based on the closeness of their operations.
When mentioning closeness, we may include geographical, cultural and linguistic, among others.
The other key element of nearshoring is cost.
Within proximity, businesses tend to bet on externa, lower-cost organizations.
Finally, the last key area is time. Time zones can be key in enhancing long-term efficiency, and nearshoring can drastically reduce the time zone burden.
Let’s take the case of US businesses nearshoring operations to LATAM agencies or talent.
These partnerships are close in both physical locations and in time zone differences. In fact, the US West Coast and East South America have a maximum of five time-zone hours! (That difference doesn’t contemplate circumstances like daylight savings.)
Yet, it's also necessary to highlight currency exchanges and living costs. The US tends to have higher living costs and average salaries than countries in LATAM. What’s more, an average salary in the US could mean a life-changing salary in a LATAM country.
A nearshoring strategy allows for the combination of good work experience, cost reduction, cultural affinity and territorial proximity.
- Contact: Nearshoring allows to make quicker and more efficient decisions. Time differences can enhance optimal management.
- Markets: Cultural affinity allows teams to acknowledge local markets better. With it, companies can develop offers that better respond to specific audiences.
- Regulations: Neighbouring countries often share labor and commercial regulations. This area is key to avoiding the penalties that come with a lack of compliance.
What is Offshoring?
Contrariwise, offshoring refers to the practice of outsourcing operations overseas.
Often, companies from industrialized countries hire providers from less-developed countries.
This approach has several motives, like lower labor costs and favorable tax conditions.
In the IT field, this procedure is relatively standard.
First, labor costs tend to be lower in less developed countries. Moreover, companies can provide competitive salaries.
Just like in the case of nearshoring, "competitive salary" is related to the living costs in different cities. The final intention is to reduce the business' expenses.
Nearshoring vs Offshoring
The first thing nearshoring and offshoring have in common is the hiring of external workforces.
As we have seen, a key difference is the time zones in which both agencies and talent operate.
Yet, these time differences can also work to the advantage of a company in enhancing specific tasks.
For instance, if your operations need 24/7 support, hiring people with opposite work hours can be a smart move.
Your digital product could have people replying to users' concerns anytime.
As a result, you could achieve higher loyalty and user engagement rates.
Nonetheless, cultural differences can cause a mismatch between clients and providers.
You might find yourself attending calls late at night to get aligned with your team.
This exhaustion can lead the client management team to burnout or resignation.
While every business is different, these are aspects you need to consider.
Conclusion
Defining a one-right answer option in this world full of possibilities would be a mistake.
Companies base their decisions on cost convenience, territorial proximity and cultural affinity.
Regardless, it's no secret that outsourcing allows companies greater possibilities and cost savings.
We hope this article clarifies these concepts!
