Thursday, December 13, 2007

Nearshoring on the rise?

I've been seeing a lot of articles lately about how IT and technology companies are pulling back outsourced projects from India and are looking nearshore, to places like the midwest, Canada, or even local providers in the same town. People point to the rising wages in India as the main driver - as salaries, especially for senior talent, get closer to US salaries, and it becomes harder and harder to retain talent in India, some companies are starting to feel like it's no longer worth the overhead of managing a team halfway around the world.

What I find interesting is that, for the past 5-10 years, in the software industry, outsourcing = offshoring = India. The three were (and still are in some circles) synonymous. What's happening is the industy is maturing, and realizing that India isn't the answer to everything. What I see, at least anecdotally, is software companies taking a closer look at their outsourcing mix, and asking themselves questions like - could some of this work be done better somewhere else in the world? How do I structure my teams and processes to be able to have a truly distributed team, with team members in 5 or 6 different sites wherever I can find the right talent? What additional value can I gain from outsourcing? What is truly core in my business?

The software industry, which is relatively new compared to other industries, lags behind in outsourcing maturity. Generally speaking, other industries like Pharma, Electronics, and Automotive, have more mature outsourcing strategies. They use a best-of-breed approach, where they deal with a portfolio of partners, each with their own specialty, to deliver parts of the product or perform R&D. They have a world-view, rather than a focus on one particular region. They depend on their partners to innovate - bring new ideas and new efficiencies, rather than simply "do X, Y, and Z" for a lower cost.

Nearshoring is on the rise, but we're going to see a rise in outsourcing to other locales as well - Eastern Europe, Vietnam, non-hotspot US cities, and Latin America are places my customers are talking about more and more. Overall, in the next few years we will see software companies use a more diverse outsourcing mix.

And if you don't beleive me, chew on this: last year Branham did a study on outsourcing that looked at outsourcing trends across industries in the US. The primary destination for outsourcing for US companies was... (drumroll please)... the US.

3 comments:

Matt said...

Matt,

Given this comment,
> What I find interesting is that,
> for the past 5-10 years, in the
> software industry,
> outsourcing = offshoring = India"

I think you'll enjoy this short clip: http://www.nearsoft.com/nearshoringthemovie.php

-- another Matt

nryan said...

Interesting blog post on near-shoring! Our company combines near-shoring with the open source phenomenon happening in Latin America, which you can read about at http://news.northxsouth.com/ -- so not only are our developers in Sao Paulo, Brazil very close to our main office in San Francisco, but they are all open source volunteers as well, which means they fit the stereotype of the free software programmer: passionate about code, meticulous attention to detail .. all the things that Indian firms have built up a reputation of NOT having. I'd urge anyone thinking of offshoring their development to consider North-by-South, http://www.northxsouth.com/ -- sorry if this comes off as an advertisement but I think our unique combination of near-shoring with the incredible free software movement in America Latina is worth talking about :)

mani said...

outsourcing software development is one aspect that has been instrumental in catapulting India to the position that it holds today in the field of IT.