Nearshore is a form of outsourcing that refers to services delivered from an adjacent or nearby location.
The concept of nearshore was first coined by Softtek in 1997 as we began to do work with our first U.S. clients. The concept began to gain ground during 2002-2003 as Softtek and the Mexican government began marketing the concept more aggressively. The broad market now identifies Nearshore with primarily Canada and Mexico for the U.S. market. The term has also now evolved to describe any outsourcing location “near” to its primary market (i.e. Eastern European countries to Western European Countries) Some analysts describe it as services delivered from an adjacent or nearby country.
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The original concept of Nearshore, as we defined in our white paper, Nearshore Goes Global, essentially promoted the following customer benefits:
- Proximity and Time Zone
- Cultural Affinity and Ease of Doing Business
- Cost Savings
These benefits represent the most elemental form of value proposition for a nearshore offering, since they are seemingly available for every company that establishes in a nearshore location, and for a seasoned global sourcing professional can be easily justifiable. Thus, it is understandable to see many players jumping into the nearshore bandwagon and claim the nearshore value proposition.
At Softtek we are certain that these elements serve as a great foundation to build a powerful value proposition for users of global services, but are just the starting point, since without a highly mature approach and world class practices these benefits can not be fully leveraged.
By the year 2002 Softtek introduced the Total Cost of Engagement or TCE concept, as an approach that evaluates the total expenditures of offshore engagements, bringing to light the cost competitiveness of a mature nearshore model, even when compared to highly cost efficient offshore models.
Although nearshore rates tend to be higher, the overall cost of nearshore engagements is equivalent or less than offshore, because of the efficiency gains that working in close proximity to the US and in the same time zones can bring. Through the use of a mature and disciplined process, the Near Shore® model is much more efficient in achieving higher percentages of work performed at a lower cost location than offshore. We must reiterate on the caveat that a mature and disciplined process is needed to achieve such levels of nearshore usage. As of December 2007 we have an average of over 90% of work performed at the lower cost location, representing huge savings for our clients.
Labor arbitrage can only bring so much cost savings to a client. Our experience shows that the companies that engage in long-term engagements, measured by Service Level Agreements, are the ones that can better leverage the capabilities of the nearshore model. By 2004 we had moved the vast majority of our engagements from Time and Materials to SLA’s. This represents an enormous advantage to hiring managers and their employers, since value is measured by results rather than time sheets, and man hour rate comparisons.
That same year, Softtek had significantly expanded its nearshore capabilities with the acquisition of GE Ddemesis and GE’s Global Delivery Center in Aguascalientes México. Softtek also opened centers in Sao Paulo Brazil and A Coruña in Spain, marking the beginning of what we call now the Global Nearshore™ Model.
In 2007 Softtek outlined its vision of the evolution of the Near Shore® model into a truly global delivery model, with the release of the whitepaper called Nearshore 2.0: Nearshore Goes Global, in which we stated: “(Nearshore companies will) open global locations outside the “Nearshore comfort zone”. This means expanding not only into their primary markets, but opening up delivery centers in parts of the world that offer them access to more skill sets and scale.” In August of that year, Softtek acquired I.T. UNITED a leading China-based provider of software development and outsourcing services, with operations in Beijing, Shanghai, Xiamen and Xi'an. This step enabled Softtek to expand its global services footprint, and complement its European and Americas coverage with the Asian component. A revised version of Nearshore Goes Global was published in April 2011.
As of February 2013 Softtek has 10 Global Delivery Centers in Mexico (4), Brazil, Argentina, Spain, China, India and the U.S. These enable the company to provide Global Nearshore™ solutions as well as complete “follow-the-sun” solutions for application-related services, IT infrastructure and BPO services.
In more than a decade of nearshore history, we have evolved our value proposition from being strongly supported in delivering services from a nearby location, to one that helps our clients to globalize their IT operations, reduce the complexity of service management, optimize cost and support the evolution of the business.