Hiring a nearshore Software Development company offers three key advantages: control, speed, and quality. The physical proximity allows the client to get better acquainted with the team that works on the project: workflow, milestones, QA. Everything is synchronized and framed within the same time zone.
Despite the advantages, many companies prefer to hire services in the same city where they operate. Sometimes, these companies prefer to avoid the inconveniences of hiring abroad; in other cases, they distrust the quality of service for such low costs. If you pay peanuts, you get monkeys, they say.
Software development companies in the United States are expensive. They have to be. They are in a market fighting for the best talent all the time. The cost of living in most tech cities is high in the US. Renting an apartment, eating and transporting in San Francisco is 194% more expensive than in Guadalajara, Mexico.
The solution seems simple, but it is full of difficulties. The linguistic, cultural, time zone differences, among other details, make offshoring look like a wrong decision. With this in mind and to improve the relationship with their customers, some software development outsourcing companies have found a way to mix the best of both worlds: keep an office in the United States where they can discuss the design and architecture of the project with its clients, while a professional development team is based in another country.
An office in Silicon Valley, another in the Atemajac Valley
To reduce the friction caused by working with companies outside the United States, some companies have decided to get closer to their customers, literally. In 2012, the Indian company Tata Consultancy Services opened a Customer Collaboration Center in Santa Clara, California intending to operate as a global headquarters for several of its services. The Mexican company Softtek made a similar move when in 2013 they acquired the service company SAP Systech Integrators, based in San José, CA. In 2014, Wizeline was founded with an office in San Francisco and another in Guadalajara.
The technology company Blue Trail Software is in this trend since 2009. Founded ten years ago by the Mexican Human Resource expert Rosalba Reynoso and the French IT specialist Rémi Vespa —who has years of experience in Silicon Valley— the company has located their software development centers in Latin America, while the headquarters remain in San Francisco.
This hybrid strategy benefits both parties. Clients pay for services with the local currency; they sign contracts in the same legal system; they can meet with outsourcing companies when they need to make the necessary observations of the product being developed. In short, they maintain all the advantages of hiring an onshore company: control, speed, and quality.
Meanwhile, the Outsourcing companies that decide to settle in Silicon Valley have the possibility of increasing their business opportunities by being at one of the nerve points of technological development, while retaining competitive prices and expanding their talent pool.
Speaking the same language is not all to understand
In East and Southeast Asia, companies have found vendors that share the same language. This feature is important. According to the 2017 Global Software Services Report, the main problem facing software development companies is the lack of clarity in customer goals. In other words: communication problems.
India has been the favorite destination for the industry when hiring software development services. In India, there are 170 million English speakers, more than all the inhabitants of the United Kingdom. The English language proficiency and the vast number of Indian talents provoke that the United States companies consider this country as their default option for their projects.
However, in a short time, customers realize that a common language is not enough to be understood in business. The advantages of hiring a service overseas seem to be diluted when the disadvantages arise at the moment the project is underway. Long-distance calls, transoceanic trips, and slow response times due to time differences add extra costs and inconveniences. In some cases, the hidden costs are higher than the savings obtained from services contracted outside the United States.
Most professionals in Latin America have proficiency in English. Therefore, this region becomes a good alternative to hire outsourcing services.
Does it matter where they develop the product?
Real estate experts say that when buying, there are three important things: location, location, and location. In outsourcing services, things are not very different. Finding an offshoring company with headquarters in Silicon Valley is an asset, but even more important is that your development center is close as well.
Companies with development centers in Latin America offer advantages that an overseas company cannot provide. The time difference between the United States and the rest of Latin America is minimal. So, Development teams have a better ability to coordinate with their American peers and respond on the same day. Cultural similarities also facilitate communication. Many Latin Americans have lived for years in the United States, and the population is familiar with the ways and customs of the country. Therefore, it is not surprising that Latin American cities such as Medellín, in Colombia, have received awards as nearshoring destinations. But among Latin American countries, Mexico has unique advantages for nearshoring.
A partner in the United States with a development center in Mexico offers nearshore so close that it will feel like onshore. The NAFTA (and soon, the USMCA) Agreement facilitates the commercial exchange between these two nations, in addition to allowing long-distance calls not to have an extra cost. There is physical proximity —Guadalajara is only four hours away by plane from San Francisco—, which allows short business trips to be aware of the development of the project and verify that quality standards are met. There is also cultural closeness. The historical migration of Mexicans to the United States makes that both nations share even the families.
These characteristics have led large Indian companies such as TCS to open development centers in the country. Also, small and medium-sized software companies have found opportunities for growth and expansion, such as Agave Lab, BTS or ScioDev, to name a few cases.
Sometimes, doubts about the quality of software development stop American companies from choosing companies with development centers in Mexico, an unfounded fear when companies —such as BTS or ScioDev— have a quality assurance team (QA ) able to identify errors in time. In other cases, the image of Mexico as a mainly rural and underdeveloped country is the primary concern. However, Mexican cities such as Guadalajara, Monterrey, and Querétaro have modernized in recent years. Currently, they offer the infrastructure that software companies need to carry out professional work, from high-speed Internet connections to data centers in strategic locations.
This development is due to local and federal governments in Mexico have supported projects to create tech-hubs in the country. Now, Mexico is home to Aerospacial manufacturers as video game companies. This environment motivates collaboration, but also creates a huger talent pool for IT Outsourcing companies.
IT Companies in Latin America are getting experience
The hybrid model (headquarters in the US, development offshore) avoid unnecessary headaches to clients and improve communications between partners. At the same time, the companies in the US obtained more affordable prices than hiring an onshore outsourcing service. In this model, the physical and cultural proximity of Latin America has provoked that more and more companies consider the region as an alternative to India, the preferred destination for Software Development Outsourcing Services.
Latin America is still far from competing at the same level as Asian countries in terms of market volume. For 2019, forecasts estimated that India would obtain 177 billion dollars in revenue from IT outsourcing services, while Latin America only accounts for 3.5% of the global outsourcing market. However, the export of services has grown at an accelerated rate in the region. Latin America offers geographical advantages, but companies also increasingly recognize its potential as a talent pool for the sector.
It is still risky to say that Latin America may at some point surpass India in this sector. However, companies that recognized the strengths of Latin American countries from years ago, combining them with headquarters in Silicon Valley, already have a clear advantage over their competitors. In their development centers, they have programmers who have fulfilled for years the expectations of the most demanding clients in the market, acquiring experience that few outsourcing companies could boast. And their customers get a service as if they were at home, maintaining control, speed, and quality.